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Silly Con Valley

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What Chierighino did instead was average the cost of the total $14 million in improvements over the entire 520 acres of the original parcel. That came to a cost of $27,000 per acre, which he subtracted from his original price (along with other minor adjustments) to come up with a final cost of $36,000 for Sumitomo's parcel.

Wirth, meanwhile, took another direction. He dumped his original set of comparable sales and came up with a new batch. This time, rather than looking at sales in the immediate area, Wirth took data from all around the Valley, writing, "Sales from throughout the metropolitan area were selected due to the lack of [commercial and industrial land] sales within the neighborhood."

Wirth chooses one sale in particular that he feels is most comparable to Sumitomo's parcel. It's a sale of 265 acres in Glendale: not exactly on a par with upscale Desert Ridge.

Although the Sumitomo parcel was not only in a pricier neighborhood but half the size, Wirth considered the Glendale site his best comp. He recommended that the Glendale site's $37,000-per-acre price be adopted for Sumitomo's land as well. Since his price was the higher of the two reappraisals, it was the one chosen by the Land Department.

Using all new comps, Chierighino and Wirth had produced their new appraisals in only three days. And this time, they differed by only $1,000 per acre--an astounding feat, analysts say.

Even more amazing, analysts say, is that Chierighino and Wirth, in a reversal of the reasoning appraisers normally use, found that a smaller, 132-acre site was cheaper by the acre than the larger, 388-acre parcel that bordered it. Wirth placed its value at $68,000 per acre, Chierighino at $60,000.

A week later, the press announced that Phoenix had beaten out Newberg, Oregon, for the wafer plant.

Industry experts who called the first set of appraisals sloppy and unprofessional say the new appraisals were much worse. If the first evaluations were shoddy, the second set were dishonest, they say. But it intrigued analysts that Chierighino and Wirth hadn't completely acceded to the state's wishes.

"The state Land Department, clearly under pressure from the Governor's Office, instructed their appraisers to do something that appears to be nonsensical and clearly favorable to Sumitomo," says an attorney who examined the documents. "The appraisers obviously got those instructions and said, 'Say what, Jack?'"

The state's chief appraiser, Edward C. Jones, is carefully explaining the reasoning behind the Land Department's instructions to Chierighino and Wirth.

"The instructions on [the first set of appraisals] was for 500-plus acres. Under that situation, the Sumitomo site was not specified, it wasn't located yet. So they came back and identified the Sumitomo site. The second instructions were to appraise the Sumitomo site as one valuation and the balance of that 500-plus acres. And that's what occurred."

One of the most basic rules in appraisal, experts say, is that carving out a smaller parcel of land will cause the per-acre price to go up, for the same reasons it costs more to buy milk by the quart than by the gallon. If Chierighino and Wirth were simply asked to reassess the value of the smaller Sumitomo parcel, their valuations should have gone up, not down.

"Not necessarily," says Jones. "There were a certain number of infrastructure requirements. There were $7 million of infrastructure that was going to be required to be placed on that property."

How does that affect the value of the land?
"It will take the value down. Because the developer is going to have to put it in."

But the developer, Sumitomo, isn't putting in those improvements. As part of its incentives package, the City of Phoenix signed an agreement with Sumitomo Sitix which obligates the city to build improvements around the plant that the city itself has said could cost up to $10 million.

Those improvements will enhance--not devalue--Sumitomo's parcel.
But when Chierighino and Wirth were asked by the state to revalue that land, they were specifically told to disregard that the City of Phoenix would pay for those improvements.

In fact, the appraisers were told to assume that the improvements would subtract from, not add to, the value of Sumitomo's land.

Appraisers say it is important to subtract the price of improvements that a typical owner would require to make a piece of land usable. But costs required by a special user--such as a huge silicon-wafer plant--shouldn't be part of the equation.

The state's instructions to Chierighino and Wirth, however, ask the appraisers to give Sumitomo full credit for all of the water-sucking, power-eating requirements it will need.

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Tony Ortega
Contact: Tony Ortega