Special Purpose Property: Valuing an Urban Wildlife Refuge
By: John T. Schmick
In early 1996, the Minnesota legislature adopted the expansion option for the Minneapolis-St. Paul airport presented in the Dual Track Environmental Impact Study. This decision endorsed the expansion of the existing airport and set the stage for one of the most challenging real estate appraisal assignments we have undertaken. Shenehon Company was awarded a contract to appraise several units of the Minnesota Valley National Wildlife Refuge (MVNWR) and to estimate the impact of the planned airport expansion. A review of this special purpose property illustrates the efforts all appraisal clients should expect in researching and analyzing real property valuation issues.
Appraisal literature and appraisers often mention the importance of identifying the appraisal problem as an early step in the process of estimating market value. In this case, the assignment involved determining the impact of airport expansion on the value of a wildlife refuge. This included estimating value before and after the impact. The difference is the measure of impact or, for simplicity, the estimated amount of damage caused by aircraft overflights.
When valuing special purpose property, the more important issue is how to define, and quantify, the property. In what market or market segment does the property compete? What characteristics or features of the property have value? How should value be defined for this property? These and other basic questions were to form the building blocks of our valuation model.
Appraisal assignments are usually based on a definition of market value. Many readers are familiar with the standard definition of market value published by the Appraisal Institute. Within that definition, the most commonly known phrase to users of appraisal services is: xwilling buyer and willing seller,à which focuses on a value-in-exchange valuation model. With special purpose property, where there may be no apparent market or a very limited market, value may be based on the propertys use. For example, a stable church exhibiting modest membership growth usually has a value-in-use (current use) significantly greater than value-in-exchange (offered for sale). With no apparent private market (non-government buyers) for a functioning wildlife refuge with significant improvements (such as the 35,500 square foot visitor center), we started our assignment based on a value-in-use premise which was later supported by our research.
The Minnesota Valley National Wildlife Refuge (Refuge) is comprised of a number of geographic units that are located along the Minnesota River from Bloomington, MN to beyond Chaska, MN. The boundary of the Refuge was established by congress when it was created by Public Law 94-466 (October 8, 1976). Section 2 of that law identifies the mission of the property as a xásource of environmental education, recreational opportunities and interpretive programs.à Our assignment included the two northern units identified as the Long Meadow Lake unit and the Blackdog unit. Within the authorized boundary of the Refuge for these units, the U.S. Fish and Wildlife Service (Service) owns 1,177 acres and leases or manages another 1,709 acres. Essentially the Service has effective control over 2,886 acres with another 1,159 acres held in private ownership within the authorized boundary of the Refuge. The entire area is adjacent to an additional 2,000 acres of state park nature area. The property is approximately 80% wetland/water and 20% upland.
Given the purpose of our appraisal assignment and the size of the property, we needed a point of reference for comparison. While the property is referred to as a wildlife refuge, that is an all encompassing term. Could it be defined differently to provide a better understanding of the property? Our review of literature and the National Wildlife Refuge system consistently pointed us towards the subject of migratory birds. This in turn led us to the University of Minnesota and the Minnesota Ornithologist Union (Union) for both measurement methodologies/theories and bird habitat characteristics.
From the Union, we learned three important characteristics necessary to create a successful and well recognized bird sanctuary/wildlife refuge: diversity of habitat, large size and close proximity to urban populations. The first two characteristics are closely related. As size increases there is a greater opportunity for diversity of habitat. A minimum size of 2,000 to 3,000 acres is suggested because it xáprovides a variety of feeding and nesting opportunities necessary to attract a broad spectrum of migratory birds.à While the property owned in fee title was smaller than this, the control over leased/managed land and its proximity to the adjacent park land, effectively leverage the benefits from diversity of habitat to an area many times its size.
The third characteristic, proximity to urban areas, is equally significant. Large size and diversity of habitat can be accomplished in many areas, but proximity to urban populations greatly enhances accessibility for human participation in both the educational and recreational aspects of a successful bird sanctuary/wildlife refuge. It is, after all, the human participation/ benefit that is the underlying purpose for assembling and developing large tracts of diverse habitat necessary to attract birds and other wildlife. Because the property is located only nine miles from the downtown core and within the second ring urbanized suburbs, it is considered to have the basic characteristics of a successful and well recognized bird sanctuary/wildlife refuge. This is consistent with its authorized mission for environmental education, recreational opportunities and interpretive programs.
Having defined the property, we then addressed the market for similar properties. We started with the entire data base of U.S. Fish and Wildlife refuges. This included 512 refuges in the U.S. and related lands. We developed a four step screening process that started with refuges only in the lower 48 contiguous states, then for size (over 500 acres but under 25,000 acres) and then for composition (over 50% wetlands but under 95% wetlands). These first three qualifying screens narrowed the potential market to 138 refuges. The final screen was used to locate each of the 138 refuges on a map in order to determine its proximity to an urban location and/or the distance to a military base with flight operations. This screen further reduced the potential market to eleven refuges scattered across the country. Upon closer review of these eleven, three were eliminated, leaving just eight potential comparable properties in the country. A characteristic found to be common to all eight refuges was the focus on migratory birds with large numbers of both recorded species sightings and species known to nest within the refuge boundaries. Geographically, four were located in the west, two were located in the east and two were located in the south.
Our next step was to visit the eight comparable refuges. Using a team of four appraisers and a standardized list of questions and topics, advance telephone interviews with refuge managers were conducted prior to each refuge visit. In addition, we contacted regional real estate offices within the Service for information. Initially, we found that only one other refuge, the relatively small (997 acre) John Heinz NWR in Philadelphia, was located as close to the downtown core as the Refuge.
A refuge can be successful on two levels. On one level, a large tract of land with diverse habitat can be successful by attracting large numbers of species for both migration and nesting activities. This satisfies the protection/preservation mission of a refuge, which we consider to be the secondary mission. However, this does not adequately address the primary mission of education where success can be directly related to proximity to urban populations.
To quantify the level of success for the primary education mission, we studied visitation levels for the eight comparable refuges, the Metropolitan Regional Parks system, and the Minnesota State Park system. We discovered that, in general, recreational oriented facilities will have a higher level of human participation than a resource oriented facility. Consequently, regional parks and state parks are less dependent on proximity to urban populations because their recreational features can overcome distance. However, within each system, there is a trend in the visitation data that indicates location with respect to urban areas does impact human participation. Through a ranking system, we determined that for resource oriented facilities, the MVNWR is one of the best examples of an urban bird sanctuary/wildlife refuge in the country.
Converting our understanding of, and definition of, the MVNWR and the comparable market to a value indication required redefining some of the traditional concepts used in the adjustment process. For example, while we sought regional data on sales of wetland property, there is a wide variance in the composition of such properties. Whereas the traditional concept is to view wetlands as a negative component of a land sale because it reduces the buildable or usable area of a site, in this case, wetland area is a positive factor. Therefore, a sale property with more upland needs a downward adjustment to reflect the wetland composition of the subject.
We previously identified the importance of location on the ability to accomplish mission goals. For this adjustment, we started with an analysis of the eight comparable refuges and their market population base, distance to urban core and market penetration or population base per visit. This eliminated any influence from market size and focused attention of visits per population relative to distance from the urban core. In that respect, the MVNWR has one of the highest market penetrations for urban refuges in the country with an estimated 18.47 population base per annual visit and the second closest location to the urban core. Given that ranking, we then developed a data base of Hennepin County land sales between 1996 and 1998. The data base, numbering 438 transactions, included all land types which were then plotted on a graph with price per square foot on the y-axis and distance to the urban core on the x-axis. The resulting trend line proved a basis for adjusting each sale based on location.
An adjustment for size differences required a detailed analysis of the history of refuge development. Typically, the amount of land owned or controlled in the individual refuges is less than the authorized boundaries of the refuge. This is partly related to the availability of funding and partly related to the availability of land. Historically, there is an initial burst of activity in land acquisition in the early years of a newly authorized refuge which then slows to a more modest level over time with periodic temporary increases in land acquisition activity. An analysis of the acquisition history of the total MVNRW refuge indicated varying numbers of transactions per county and varying average transaction size per county. Absent the four largest acquisitions, those over 1,000 acres, the historic average annual acquisition level is about 170 acres per year over the past 22 years since its authorization.
Based on the example of the Tualatin River NWR, currently in development near Portland, OR., it can take up to six years after authorization for a new refuge to acquire sufficient land area to start construction of water management systems and habitat restoration, and another four years before a substantial visitor center is constructed. Thus, size of land sales can be related to the development cycle relative to the average annual acquisition level and the number of years it contributes to the development cycle. Larger land parcels shorten the development cycle and smaller land sales create time delays in development.
A factor commonly found in the comparable refuges was that the land area under effective control was often larger than the land area owned in fee simple. Thus, the refuges are able to leverage their ownership in a manner not found in individual land sales. Remembering that larger size creates greater habitat diversity, this ability to leverage ownership into greater area control offers increased opportunity to accomplish education mission goals. Under a value-in-use premise, this leveraging effect, or assemblage premium, leads to greater connectivity between the land, habitat and wildlife, and the human participants the program is intended to attract. Therefore, an adjustment factor was developed to reflect this assemblage premium present in the subject but not found in individual land transactions.
Finally, our research indicated that there is a market reaction to the creation of a refuge such that the Service, seeking to grow and expand a refuge to the full extent of its authorized boundaries, essentially becomes a victim of its own success. The market responds to the creation of a successful refuge by increasing the cost for an expansion of that same refuge. One need only look at land values around the Mall of America since its creation, or land values around a new golf course to understand that the creation of a significant development influences land values around that development. We find the same market effect surrounding a successful urban wildlife refuge.
The creation of a refuge influences other users and buyers who see the refuge as an amenity. Combined with the public knowledge of the authorized boundaries of a refuge, these other users, over time, bid up the price of adjacent land such that the definition of market value, in terms of price point, continues to increase. However, individual land sales not adjacent to a refuge or not within the authorized boundaries will not reflect this amenity premium. Therefore, an adjustment factor was developed to reflect this amenity premium differential not found in individual land transactions purchased for other than refuge expansion.
The end result of our research and analysis of urban bird sanctuaries/wildlife refuges was a well supported appraisal report based on sound economic and appraisal theories and market data. We were able to avoid the controversy surrounding the concept of public use value and the emotions of environmentalism by focusing on appraisal principals and reading the market.
A project like the MVNWR is a unique opportunity to learn a new property type and new markets. Ultimately, this project involved a team of six appraisers and staff members, several outside experts in various fields and subjects, and many months of work. We believe we have developed a new standard in the appraisal of this type of property not found in current appraisal literature. While not many property owners will have valuation issues involving such unique properties as the MVNWR, purchasers of appraisal services should nonetheless expect a high level of ability in the appraisers they engage for their individual valuation projects.
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