1. real estate

March 23, 2015
Jeff Silvestrini
Cohne Kinghorn
111 E. Broadway, Eleventh Floor
Salt Lake City, UT 84111
RE:
Brandon Frank et al. v Hi-Country Estates Homeowners Association et al.
Dear Jeff:
I was asked to review the “Hi-Country Estates 2 HOA Report Economic Analysis” completed by the
Institute of Government and Politics of Utah State University (“Analysis”). The Analysis is three pages
long with the following stated purpose:
This analysis is aimed to determine the current property values inside the Hi-Country Estates 2
HOA and address the question of whether the values would increase by dissolving the current
HOA structure and annexing into Herriman City. Utah State University was commissioned by HiCountry Estates 2 HOA residents to do this study to evaluate the economic impacts of dissolving
the current HOA structure and annexing into Herriman City.
My scope in this memo is to review the methods and sources of information used by the Institute in
the Analysis. My review does not include a finding on the accuracy of the results and it does not
include a re-analysis of the question to determine the values using industry standard practices when
the methods used by the Institute deviate from standard practice.
The Analysis lays out several “key questions or issues” and provides a brief analysis and finding
relating to the question. The Analysis does not include a “Methodologies” section nor does it provide
references for the source of the data used in the Analysis. Mary Jane Pennington, Hi-Country Estates
HOA Board Member, asked Neil Abercrombie, the author of the analysis, if there was an additional
report or more to the study than the three pages provided including methodology and data sources.
Neil Abercrombie’s response contained in an email was: “No there is not an additional report. I
authored it, but was asked to complete a brief one or two page report. The data evaluated is using
MLS information that is publicly accessible. Let me know if I can help clarify anything or discuss any
conclusions you may disagree with.” Although Dr. Pennington asked follow-up questions, no
additional information was provided.
The question by question review of the Analysis that follows is based on my experience with real
estate market analysis and my background teaching the Real Estate Market Analysis course for the
University of Utah’s Masters in Real Estate Development program. I am a certified planner (AICP)
with more than 20 years’ experience evaluating and planning for the development of property
ranging in size from a single building lot to several thousand acres. I am currently a consultant
providing planning and analysis to both public and private clients. Prior to joining the private sector I
was the Director of Community Development for the City of Midvale, Utah. For the past four years I
have also been an Adjunct Instructor in the Planning Department at the University of Utah. A copy of
my resume identifying some representative projects and presentations is attached.
The industry standard approach for understanding future development value of property includes
several steps. An excellent summary of these steps can be found in the text that I use for my classes:
nd
Real Estate Market Analysis, Methods and Case Studies, by Deborah Brett and Adrienne Schmitz, 2
Edition (2009), Urban Land Institute, Washington, D.C. The basic method, as practiced in the field of
Real Estate Market Analysis and as taught by me in my class, is to:
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Identify the strengths and weaknesses of the identified development site (buildable slopes,
parcel shape and size, existing infrastructure, water and sewer availability, amenities,
regulatory issues, etc.),
Evaluate the strength of market demand for the proposed development (is there strength of
market to absorb the proposed number of units),
Assess the strength and competitive position of comparable product in the market (what
units or areas would targeted customers also consider);
Estimate the cost to realize the development opportunity (entitlement, infrastructure and
similar costs), and
Project the future per unit/lot/SF value of the development opportunity (projections can be
based on the value of comparable, competing units; cost of development; or .affordability to
targeted customer).
These are the methods and steps that I used in reviewing the Analysis. The “key questions or issues”
in bold followed by the Institute’s analysis and findings in italics are listed below. Following the
question and analysis provided by the Institute you will find my discussion of standard industry
practices and potential impact on the Institute’s findings.
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Would property values in Hi-Country Estates 2 HOA be more valuable inside or outside the
current HOA structure?
Our research has found that both residents and landowners in the Hi-Country Estates 2
HOA would increase the potential value of their land by dissolving the HOA and annexing
into Herriman City, primarily because Herriman City allows for greater building density.
Reducing the minimum lot size requirements from 2.5 acres to a smaller lot size would
significantly increase the property values for all owners who choose to sub-divide their
property.
This statement of finding equates dissolution of the HOA and annexation into Herriman with
increased property values. In truth, the finding is that increased density and subdivision activity will
increase “potential value” of the property, not the change in jurisdiction. Although, as a general rule,
doing more with a piece of property results in higher value each situation and property must be
evaluated independently.
Some properties have limited developability as a result of slopes,
geotechnical issues, wetlands, floodplains, water/sewer availability, etc. Some properties benefit from
preservation of open space, increasing per square foot value as a result of perceived value from
proximity to open space, recreational areas or view corridors.
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What is the potential financial impact for an individual owner inside the HOA if the HOA were to
dissolve and annex into Herriman City?
If the Hi-Country Estates 2 HOA were to be dissolved the financial impact for each owner
would be determined individually. The annual cost difference of HOA fees and Herriman
City property taxes would not be a significant change and could result in better local
services for a lower cost (see information later).
The potential for property value increase for both residents & landowners is significant with
the change in zoning from a current 2.5 acre requirement up to a possible ¼ acre lot size
which is common in Herriman City.
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For example, a typical 3,500 square foot home on 2.5 acres inside the HOA is
currently worth about $350,000. If an owner in this scenario decided to sub-divide
their 2.5 acres into 10 lots (1/4 acre each), they could potentially sell each lot for
$128,000 and generate a new property value for that owner of over $1.5 Million.
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A house with 5 acres in this scenario could maximize a profit of over $2.7 million if
that owner chooses to sub-divide their land.
There are several problems with this finding. First and foremost the basis of the estimated value for
both the current Hi-Country property ($350,000) and the potential lot value ($128,000) is not
identified and established. Standard industry practice for real estate market analysis is to use several
sources and several data points to establish current values. These sources include (when available):
 Actual sales data obtainable only from parties to the sale or third party data providers,
 MLS data obtainable only through a registered real estate agent and MLS member, and
 Assessor’s Data
Historical and current data for properties within the study area should be gathered and analyzed for
comparability and trends.
Using a single year and a single data source may result in anomalous data and skewed findings.
The second problem with this finding is the assumption that 100 percent of the acreage within HiCountry Estates HOA can be subdivided into ¼ acre lots as a result of rezoning. This ignores several
realities of real estate development. Subdivision and development requires the identification and
construction of infrastructure to serve new development. This infrastructure includes roads and
easements for pipes and power lines. For pro forma purposes I generally use an assumption that 20
percent of buildable property will be consumed by infrastructure needs.
The concept of buildable property is also ignored in the Institute’s finding. A key step in real estate
market analysis is evaluation of the site under consideration. This evaluation focuses (among other
things) on constraints to development including the presence of unbuildable slopes (particularly
important for properties in the foothills such as Hi-Country Estates), waterways and adjacent
development types.
In addition to identifying what percentage of the property can be subdivided into building lots, this
evaluation allows for a comparison of the property under analysis with the property value data to
determine if the property would be more or less valuable than the property in the data set.
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How does the vacant land value inside Hi-Country Estates 2 compare to neighboring vacant land
inside Herriman City limits?
Undeveloped raw land in Herriman City is currently worth about 10x more than similar raw
land in Hi-Country Estates 2. Recent comparable sales of undeveloped raw land in
Herriman City sold for around $100,000 per acre and historically as high as $232,000 per
acre. Comparable land in Hi-Country Estates 2 sold for an average of $10,000 per acre.
[Footnote: This is based on 2014 undeveloped raw land transactions in Herriman City and
2013 and 2014 raw land transactions in Hi-Country Estates 2. Recent comparable sales of
undeveloped raw land in Herriman City sold for around $100,000 per acre and historically
as high as $232,000 per acre.]
There are currently around 1,500 acres of undeveloped land in Hi-Country Estates 2. The
current value per acre would increase substantially if prepared (development of necessary
infrastructure) and zoned for smaller lot sizes. According to comparable land sales in
Herriman City, ¼ acre lots are currently selling for $128,000, or an estimated value of over
$500,000 per acre of land.
The table below shows the value per acre increases significantly as the lot sizes get
smaller.
Recent Vacant Lot Sales in Herriman City
Lot Size
Average Sale Price
Per Lot
Estimated Value
Per Acre
1/4 acre lot
$128,000
$514,000
1/3 acre lot
$133,000
$398,000
1/2 acre lot
$155,000
$310,000
3/4 to 1 acre lot
$173,000
$173,000
2.5 acre lot
$203,000
$84,000
[Footnote: Comparable price analysis is determined based on reviewing around 50 vacant land sales
in Herriman City in the past two years.]
As with the previous finding, the source and comparability of the data has not been established. For
instance, concerning the information in regards to the average sale price per lot for a ¼ acre lot:
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Are the lots in this example within an area zoned for ¼ acre lots, paper lots (a subdivision
plat has been approved by the city and filed with the county) or buildable lots (lots with
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road, water and other infrastructure in the R-O-W that are ready for the building permit to
be issued and the foundation dug)?
Are the per acre values acres with paper lots, acres with buildable lots or simply an estimate
of an acres worth of ¼ acre lots?
The applicability of these figures to the actual situation in Hi-Country Estates remains in question. As
indicated above, an analysis of the buildable area within the HI-Country acreage and infrastructure
required to serve lots on that buildable area has not been completed and therefore can’t be
compared to buildable lots in another area of the valley, particularly areas without the challenges or
open space opportunities of Hi-Country Estates.
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How do current home values inside the HOA compare to neighboring homes in Herriman City?
Currently the value per square foot for a house inside the Hi-Country Estates 2 HOA vs
outside the HOA are virtually the same at $100 per square foot. The true value potential is
in the land owned by each owner. If the HOA were dissolved and annexed into Herriman,
residents would have the option to sub-divide their land for a significant increase to their
property value.
This finding is problematic. The finding states that home values within Hi-Country HOA and Herriman
are equal on a per square foot basis. However, the homes are not sold simply as structures, the
homes are sold with the lot within their neighborhood context. So, the finding seems to be stating
that homes within Herriman in more dense developments are equal in value to homes in Hi-Country
HOA with larger lot sizes and that if you created more homes on those lots the overall value would go
up by $100/SF.
This finding is not a logical result of the information provided. A finding on comparability requires an
analysis to identify the relative value of the differences in density, situation, quality, and amenities. To
simply assume that adding structures to an area will result in a comparable value per square foot is an
oversimplification of the real estate market analysis process and is not reflected in the actual
functioning of the market.
It is just as possible that increased density in Hi-Country will result in lower values per square foot as
the currently less dense development is equal to the more dense development on a per square foot
basis.
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Would property taxes increase by incorporating into Herriman City?
The combined property tax rate in Herriman City is about 4% higher than the current Salt
Lake County unincorporated area, so the net result is minimal. HOA fees charged by HiCountry Estates 2 are currently $409 per year for each unit. This fee, of course, would be
eliminated with the dissolving of the HOA.
Residents that do not want to sub-divide their land will maintain their current property tax
value, pay similar property tax amounts as they are currently paying per year and will not
be affected.
The rise in property value will only occur when the HOA is dissolved, the area is annexed
into Herriman and the property is officially sub-divided and platted, by the owner, through
the city. Property owners that wish to sub-divide their property will be able to do so.
Property owners that do not wish to sub-divide will maintain their property & animal rights
the way they exist now with no added taxes or costs.
Property owners on greenbelt will maintain their greenbelt status until they develop their
land. Annexation in Herriman will not affect this status.
This finding assumes that assessed value will remain constant. This is not necessarily true as the
Assessor evaluates taxable values based on the performance of comparable properties within a
neighborhood. If, as the Analysis maintains, annexation into Herriman results in higher value, then that
will be reflected in the assessed value of the property.
The basis of the assertion that the rise in property value will occur only as a result of a sequence of
events beginning with dissolution of the HOA and ending with platting is unclear. Has the City of
Herriman committed to this sequence of events and has the Assessor committed to maintaining
current values in light of increased values on adjacent parcels?
As a matter of fact, the City of Herriman has posted the following disclaimer on its website:
High Country II Disclaimer
0
It has come to Herriman City’s (“City”) attention that a group identified as Unlock Our
Property Values has produced thirteen videos (“Videos”) about dissolving the High
Country II Home Owners Association and/or annexing to the City. The City specifically
states that the views, opinions, representations, or positions expressed in the Videos
are solely those of the maker of the Videos and do not represent those of the City.
Please be informed that the City has not taken a formal position with respect to the
dissolution of the High Country II Home Owners Association and/or annexation to the
City. Any communications (verbal, written, or otherwise) regarding the same are not
authorized by the City nor those of the City. The City will not accept any liability with
respect to the Videos or any other unauthorized communications.
This statement clearly distances City decision makers from the assertions made in the Analysis used
as the basis for the information used in the “videos” referenced in Herriman’s statement.
The statement relating to greenbelt status is probably true.
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What about services currently provided by Hi-Country Estates 2 (road maintenance, snow
removal, etc.)? Would Herriman City provide these services? Would these services cost more
with Herriman City?
Herriman City has indicated they would take over the maintenance and improvement of key
road infrastructure. For the residents living on Rose Canyon Road this service will be paid
by the City from their normal property taxes, with no additional fees. All other property
owners would be in one of several newly created special service districts set up by
Herriman City. These districts are common in Utah. The actual dollar amount paid by each
homeowner to the special service district has yet to be determined (this would be
proposed by Herriman City). However, it would likely be far less than the $409 per unit per
year HOA fee residents are currently paying to Hi-Country Estates 2.
A critical reason for the decreased cost for service maintenance is that currently around
50% of Hi-Country Estates 2 budget goes to paying legal and administrative fees. Herriman
City would also be able to maintain and improve these services more efficiently as part of
their citywide public works department.
Once a developer has paid to pave and improve a road up to Herriman City standards, the
road would be turned over to Herriman City and the residents living on that road would no
longer need to pay for its maintenance. This would be paid for by Herriman City from
property tax dollars.
This finding is based on several assumptions about the future actions of Herriman City, HI-Country
Estates 2 residents and future developers. As indicated in Herriman City’s disclaimer quoted above,
the City has not committed to any actions. The disclaimer reinforces my observation that much of the
Analysis is based on unsupported assumptions regarding future actions of the City of Herriman staff
and elected and appointed officials.
In addition, it is my understanding that the special service district process is governed by Chapter
17D(1) of the Utah Code and includes procedures and processes for protesting the creation of such a
District. If adequate protests are received then the District cannot be created as proposed. Also, in
the previous finding the Analysis indicated that the current $409 per unit HOA fee is roughly equal to
the higher property tax rates (without providing the underlying data to verify this) and then in this
finding says that the additional special service district levy will be less than the current HOA fee.
However, the analysis never provides any information on the cumulative effect of all of these changes
and adjustments.
Additionally, no data or information is provided concerning Herriman’s cost of services versus the
HOA’s cost of services. I know from several analyses I have completed for various municipal clients
that the cost of service varies considerably depending on the actual level of service (time delay in
clearing roads of snow, number of times street sweeper serves an area annual, etc.). The data
concerning level of service and actual cost per lane mile is the standard practices on which to base a
finding such as this.
Overall the Analysis does not use standard industry practices to evaluate the future development
value of the 1,500 acres included in Hi-Country Estates 2 HOA or anticipated impact on current
property owners. The values identified are not based on standard practices.
Please let me know if you need additional information or if I can clarify any of the findings.
Regards,
Christine C. Richman, AICP, MBA