Documents acquired from the city via a Freedom of Information Act request are shedding more light on the possible grounds for downtown developer Mark Brown’s lawsuit against property appraiser Ivo Romenesko.
Last August, Brown bought the Charlottesville Parking Center, LLC (CPC), which owns the land under the Water Street parking garage and has a stake, along with the city and other partners, in the garage itself. Several months before Brown acquired the company for $13.8 million, Romenesko conducted an appraisal for the company’s previous owners that Brown contends set the lease on the land far too low. His lawsuit, filed late last month in Charlottesville Circuit Court and first reported by C-VILLE, accuses Romenesko of professional negligence and claims $4.25 million in damages.
Brown did not return a request for comment for this follow-up report, and an employee at Romenesko’s firm, Appraisal Group, said the boss had no comment. Speaking on behalf of Charlottesville City Manager Maurice Jones and Chief Financial Officer Aubrey Watts, city spokeswoman Miriam Dickler said staff did not want to weigh in on the issue due to the pending litigation.
But appraisals and analyses of the Water Street garage and the lot under it obtained by C-VILLE offer a little more insight.
One is the very appraisal that’s at the center of the suit. Dated February 5, 2014, it was intended to determine the value of the land under the garage and an appropriate market rent for its lease to the Water Street Parking Garage Condominium Association (WSPGCA), of which both the city and CPC are members.
Thanks to an earlier contract, the condo association had been enjoying a good deal: an annual ground lease rent of $167,691. But that amount was scheduled to reset to “market value” on July 1, 2014, and the rent would be locked in for 10 years.
In his 42-page appraisal, Romenesko set that market rent at $415,000, a number he arrived at by valuing the property at $7.35 million and suggesting a lease rate of 5.65 percent.
A separate document, however, offers an alternate explanation for how the company settled on the lease amount, and suggests it should have been much higher. In a study commissioned by Brown shortly after he took control of CPC, real estate services group Cushman & Wakefield reported that the true market rent was estimated to be more like $1 million—and said CPC knew that.
“The condominium association could not afford market rent,” the Cushman & Wakefield report says. CPC could have insisted on the higher amount. “Given CPC’s long standing relationship with the City, they chose not to pursue this course,” the report says, and the parties struck a deal.
The report goes on to note that CPC’s new owner can, however, look forward to a big rent spike—eventually. The ground lease will reset again in 2024, which could allow Brown to up the rent or take over the garage altogether through foreclosure.
Is Brown’s suit over Romenesko’s $415,000 lease value an indication that he’s unwilling to wait that long to make up for what he believes was an artificially low agreed-upon rent? He won’t say. And neither Jones nor Watts was willing to comment on what would happen to parking fees in the Water Street garage should the city and the rest of the condo association partners suddenly face a ground lease that’s more than double their current rate.
“It’s really impossible to know what they would do,” said Dickler.