BLM appraisal policy draws new criticism

     By Nick Haley
     Real Estate Writer
      For the second time this month, the Bureau of Land Management has been told its land prices in Nevada are off the mark.
      This time, however, the federal agency is said to have set prices too high on its land holdings within the Las Vegas Valley.
      Scott Gragson, a land broker for commercial realty firm Colliers International, echoed what many local developers have said since the BLM began conducting twice-yearly auctions of its vast Las Vegas land holdings last year: The agency's "fair market value" appraisals are too high, and the law governing the sales terms are too strict.
      Earlier in the month, a Government Accounting Office report criticized land swaps conducted by the BLM and U.S. Forest Service, which are used to trade environmentally sensitive land for developable real estate. In the cases cited, most of them occurring in Nevada during the 1990s, the two federal agencies are said to have exchanged undervalued urban land for overpriced remote properties.
      The report, which recommended a permanent end to federal land swaps, was not the first to levy the claim that the exchanges cost taxpayers millions of dollars. Previous allegations prompted passage of the Southern Nevada Public Land Management Act of 1998, which replaced the complicated land swap policy in Southern Nevada with an auction process that generates funds to make cash purchases of land and park facilities throughout the state. The act stipulates that all lands offered at auction have a starting price determined by "fair market value."
      "We start at appraised value and go up, which may seem a little strange, but it's designed to protect (the public) who owns land from being shortchanged," said Mike Dwyer, a field manager with the BLM. "It's a constraint of law, but that's how it works."
      Dwyer oversees the BLM's disposal of more than 27,000 acres of federally owned land in Southern Nevada, which is a far greater amount than the federal government holds in any other metropolitan area.
      "We're essentially an island in the middle of federal land," Dwyer said.
      Because of that, BLM's land policy has a powerful effect on growth and development in the valley. Many major developments, including Southern Highlands, Anthem and Rhodes Ranch, were acquired through BLM land exchanges. The borders of Summerlin were re-configured by a land exchange that allowed the BLM to acquire land in the Red Rock Canyon National Conservation Area. Some land swaps that were initiated before the new law are still under way, including one that would add land to Lake Las Vegas Resort in Henderson.
      Disposal of the acreage is expected to take about 20 years, which Dwyer said gives the agency time to try various sales strategies within the confines of the law.
      So far, the BLM has held two such auctions, selling 20 parcels in November 1999 and 35 in June 2000. Parcels sold for an average of 20 percent more than appraisal at the first auction and 10 percent more than appraisal at the second. Most of the 87 parcels at the second auction, however, drew no bids at all.
      Gragson said the new auction process is "fairer, but not better," and although it is simpler and more accessible to a wider segment of the market, the agency probably won't be any better off financially.
      "You're going to see a lot of these properties not get bid on except for (the larger) parcels," Gragson said.
      In both the old land swap policy and the new auction process, he said too much consideration is given to location and development potential.
      "Appraisal is only one aspect," in land deals, he said, and appraisers need to consider the specific terms of the auctions and make appropriate discounts. Purchasing land at the auctions is fraught with risks, such as speculating on local zoning restrictions and a lack of a due diligence period to investigate the land for its true characteristics including size, utility access and soil quality. Investing the time and money in advance is also risky, because an investor doesn't know if he or she will win the auction.
      "When you're buying for appraisal or above, that's very difficult to do unless you already have your plans in place as to what you're going to have at the site and you know you can build it," Gragson said. "The appraisers need to factor these things in. And mostly, they need to discount the price, say, 30 percent. You have to get people involved in the process and you don't do that by starting at appraised value at an open auction. Once you get people there, you can count on them to bid passionately and raise the price."
      Gragson said the land swaps, although flawed, "got a bad rap." Environmentally sensitive land may not have a high resale value because often it is located in a desolate area far from utilities and other services, but it has a nonmonetary value based upon conservation factors.
      "Not everything's value is a dollar figure when you're doing a trade. There are other factors to consider," Gragson said. "If you're looking to protect some plant that only grows in a particular region that's a long ways from services, that land might not have much value for development, but it would fulfill that goal (to preserve environmentally sensitive land)."
      Because the appraisals and the auction process are mandated by a federal act, Gragson believes there's little the local BLM office can do change terms or lower prices.
      Dwyer said some land swaps were actually a better deal for his agency than the auctions, because the values came out the same, but that all of the incurred costs, such as appraisals and environmental assessments that are required by law, fell upon the buyer.

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