(Part III of IV) Part one of this four-part series discussed the unit principle of property appraisal. Part two discussed the methods of economic obsolescence measurement. This third part recommends best practices responses to the most typical assessment authority objections for economic obsolescence measurements. Introduction Valuation analysts (“analysts”) are often asked to develop value for complex industrial and commercial properties for taxation and other purposes. Unit principle appraisals value these complex properties as a single unit operating collectively on a going concern basis. And the analysis of economic obsolescence is an important cost approach component in the unit principle appraisal…
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Selection of Metrics to Measure Success Over the past years, companies have adopted a hybrid work model, that is an alternative to the Monday through Friday 9:00–5:00 in-office model. What hybrid model works best? This article discusses the emergence of the hybrid work model and metrics applied to test the model. With 74% of U.S. companies transitioning to a permanent hybrid work model, leaders are turning their attention to measuring the success of their hybrid work model. That is because there is a single traditional office-centric model of Monday–Friday 9:00–5:00 in the office, but many ways to do hybrid work.…
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(Part II of IV) The first of this four-part series considered the differences between the unit principle of property appraisal and the summation principle of property appraisal. This second part describes and illustrates the generally accepted economic obsolescence measurement methods (with particular emphasis on the capitalization of income loss method). Introduction Valuation analysis (“analysts”) are often called on to value complex, special-purpose industrial and commercial property operating collectively as a single “unit” of property. Analysts typically apply the cost approach to value such special-purpose property. This discussion focuses on the identification and measurement of economic obsolescence within the application of…
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June 2023 What happens when an owner pays him or herself a non-market rate of compensation? This month’s legal update presents, Mekhaya v. Eastland Food Corp., 287 A.3d 395; 2022 Md. App. LEXIS 938 (Md. Ct. App. December 22, 2022). In that case, an appellate court discusses what can happen when owners use their control prerogatives to pay owner employees more than a market rate for the services they provide to the organization. Owner managed privately held businesses can sometimes play fast and loose with characterizations of employment compensation and equity holder dividends/distributions. Tax preparers will sometimes raise concerns that…
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Avoiding Speculation The author of this article, Dr. Kreuter, recently testified in a jury trial in New York State Supreme Court. The case was heard in April 2023. In the case, Kela Tennis, Inc. (“Kela”) sued the City of Mt. Vernon (“Mt. Vernon” or “the City”). On behalf of Kela, Dr. Kreuter calculated the economic damages in connection with the City’s breach of contract with Kela. The City had wrongfully destroyed the tennis bubble Kela had operated, leading to severe losses. This article explores the method used to compute damages, which included careful consideration of partially offsetting mitigation, a reasonable…
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There are riches in niches! That’s because you cannot be everything to everybody. Sounds reasonable. But what is missing is the advice that will help you identify your practice niche that everyone says is the secret sauce to making more money. There are riches in niches! That’s because you cannot be everything to everybody. Sounds reasonable. But what is missing is the advice that will help you identify your practice niche that everyone says is the secret sauce to making more money. I’ve written previously that my niche was tax purpose valuations for manufacturing and distribution companies. (I practiced what…
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(Part I of IV) Valuation analysts (“analysts”) are often asked to value special-purpose industrial and commercial property. These analyses may be developed for various purposes, including taxation purposes. This discussion focuses on the identification and measurement of economic obsolescence in the application of the cost approach to value such special-purpose property. This topic is particularly relevant to the unit principle appraisal of integrated and complex properties operating on a going-concern basis. Analysts and tax assessors often apply the unit principle of appraisal to value such complex industrial and commercial properties for state and local ad valorem tax appeal and litigation…
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A Review of the Basics for Lost Profits (Part V) This is the fifth article in a series reviewing the basics for lost profits. When calculating lost profits, some assignments will show results with future lost profits. The future lost profits must be discounted to a present value. This article will review issues relating to discounting future lost profits to their present value. The topics discussed will be (1) from what date to discount losses, (2) ex ante and ex post approaches, (3) modeling or not modeling projections of future losses, and (4) the appropriate discount rate. This is the…
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May 2023 In the recent case of Munro v. University of Southern California, the issue raised there is when and whether can a Plaintiff proceed to trial on a new damages theory after the discovery deadline has passed. This article discusses FRPC 37, the federal rule of civil procedures that sets forth the standard for admitting or denying the admission of a new theory under the circumstances described above. For those of us caught up in the chaos of litigation, it may sometimes seem that scheduling orders and court deadlines are arbitrary and subject to change at the judge’s whim.…
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Part I in a Series Addressing Advances in Forensic Accounting and Financial Forensics The author of this series of articles is co-founder of Valid8 Financial Forensics Software, a Seattle, WA and Boulder, CO-based professional service provider. These articles set forth techniques used to investigate financial fraud allegations and focus on the flow of funds. As 2023 comes into clearer view, it is evident that the changing economic tides will bring a greater emphasis on scrutiny. With interest rates on the rise and recessionary fears growing, the tide is, at long last, going out—and when the tide recedes, we will truly…
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Client Onboarding Onboarding clients is a critical task. This is a process that enables practitioners to mitigate risks and set client expectations. The author shares his views on the importance of client onboarding. While the experience of a new client or matter can be enthralling, practitioners should consider utilizing a formal, comprehensive client onboarding process to mitigate risk. Accepting a client or matter that does not align with you and your organization’s business goals can be a deflating experience for a professional and his/her team. Professional organizations have created standards for which their members should ascribe to and serve as…
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Relief for the Tenant? Grief for the Landlord? With an anticipated increase in brick-and-mortar retailer bankruptcies, landlords may find themselves with little control over the future of their leases with bankrupt retailers. The Bankruptcy Code was designed to provide a “fresh start” to debtors whose balance sheet was weighed down by too many obligations, too little income, or insufficient cash flow. A debtor demonstrating a reasonable likelihood of a successful reorganization may be entitled to rid itself of costly real estate leases. But what are the rights of the landlord? A recent decision in the Southern District of New York,…
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A Synopsis of Valuation Brief 1 “Understanding the Differences: Conclusion of Value vs. Value Calculations” Valuation Brief 1, “Understanding the Differences: Conclusion of Value vs. Value Calculations” attempts to unpack the differences between that which is a conclusion of value and that which is not. In this 14th article of the unimpeachable neutrality series, the author provides a synopsis of the key takeaways from the inaugural valuation brief for which he had the pleasure of being a co-author. Society has evolved and perhaps devolved such that labels are becoming increasingly more important. From preferred pronouns to politically correct labels that…
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Indications for 2023 After a record year in 2021 transactional activity, where healthcare mergers and acquisitions (M&A) were up by 56 percent, the market continued to thrive in 2022. Preliminary results revealed that 2022 M&A deals hit a record high of 2,409 deals; 150 transactions over what was observed in 2021. Despite economic challenges (e.g., rising interest rates and borrowing costs, inflation, and labor costs), the healthcare transactional market has remained active. This article will review the U.S. healthcare industry’s M&A activity in 2022, and discuss what these trends may mean for 2023. After a record year in 2021 transactional…
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Tread Carefully Using this Market-Approach In valuation theory, the market-based approach, being one of the three main valuation approaches, can rely on the guideline private comparable transactions method, suggesting that the results obtained in that way should be treated equally with other valuation approaches and methods. However, the disadvantages of the guideline private comparable transactions method are so consequential that its reliability should be strongly questioned, and the results based on it should be taken with significant caution. This article justifies this opinion by stating the most important weaknesses of the mentioned method. In valuation theory, the market-based approach, being…
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Really? How are professional fees determined? What role, if any, does the “market” have on this question. In this article, Rod Burkert shares his views on this matter. You get what you pay for. We hear this cliché most often in a pejorative sense, but is it true? How do we know? Take your practice … how do you determine the fees you set for your professional services? Only one answer makes sense, which you will undoubtedly agree with yet likely dismiss (read to the end). This QuickRead was inspired by a LinkedIn conversation with a BVFLS colleague. Here is…
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A Review of the Basics for Lost Profits (Part IV) This is the fourth article in a series reviewing the basics for lost profits. Important in any assignment for calculating lost profits is understanding standards set by the courts. The three standards that courts use in assessing lost profit calculations are foreseeability, proximate cause, and reasonable certainty. In this segment, these court standards for providing a lost profits analysis are reviewed. Read Part I, Part II, and Part III. This is the fourth article in a series reviewing the basics for lost profits. In this segment, the court standards for…
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COVID-19 Pandemic Deemed Over and Waivers Ending On January 30, 2023, President Joseph Biden announced that the public health emergency (PHE) and national emergency declaration related to the COVID-19 pandemic will finally end on May 11, 2023, after being in place for over three years. This article will discuss the changes that will take place after both declarations cease, and the implications for stakeholders. On January 30, 2023, President Joseph Biden announced that the public health emergency (PHE) and national emergency declaration related to the COVID-19 pandemic will finally end on May 11, 2023, after being in place for over…
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Understanding the Fundamentals of the Industry The purpose of this article is to give other experts facing the challenge of completing a valuation of a Bitcoin mining facility some of the fundamental characteristics needed to understand the operations and assign value. A few months back I received a call from a potential client looking for a valuation of bitcoin mining company for purposes of a prenuptial agreement. I excitedly said “yes” I would love the engagement, very candidly telling the client that I had not valued one in the past but that I was part of an amazing organization, the…
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A Minimalist’s Suggestion on How to Lose the Boilerplate What level of detail should valuation analysts include in a detailed report? In this article, the author shares six practices he follows to answer the above question. You probably remember that college professor who said they graded term papers by throwing them down the stairs and giving the ones the farthest down the highest grade. This is how I feel many valuation reports are written. Recently, I was asked by an attorney on a malpractice case to review a valuation report. It looked like a reasonable, professionally done valuation report. But…