Recent Expert Witness Case: United States of America v. 32.42 acres of land

The London Realty Advisors recently provided expert witness testimony, analysis and consultation on behalf of the United States Department of Justice in the case of United States of America v. 32.42 acres of land; San Diego Unified Port District.

The property involved the Anti-Submarine Warfare Training site on the south side of North Harbor Drive at Nimitz Boulevard in San Diego, CA. The property includes 27.54 acres of land area in a single parcel plus a narrow water parcel of 4.88 acre along the San Diego Bay.

Since the U.S. was acquiring the parcel from the San Diego Unified Port District, the case involved the determination of the fair market value of the property. While the appraisers were generally consistent with the current fee simple market value, the case was more complex because it centered on the prospective “use” value of the site upon the lease expiration in 44 years.

The underlying question was: how much would a buyer pay for 32.42 acres of land on the San Diego Bay, if you don’t receive the land for 44 years, have no income from the lease, and are responsible for demolition after the Navy vacates the property?

London Group Principal Nathan Moeder served as an expert witness and delivered trial testimony for the U.S. Department of Justice. The key issue that he testified to was the risk involved in holding the asset over the 44 year period and how one would quantify that risk in a discount rate.  Mr. Moeder addressed how a prospective investor would gauge the risk, given the entitlement and market uncertainties over this long holding period.

The London Group reviewed materials, industry publications, and conducted trending analysis for various investment indexes, including U.S. Treasuries, Corporate Bonds, NCREIF and RERC. We advised U.S. Department of Justice attorneys as they prepared their case. In trial, Mr. Moeder explained the concept of discounting and how it is used in the financial and real estate industry. He discussed the components of a discount rate and the appropriate indexes that are generally used for benchmarks and comparison. He also testified on the various real estate risk components pertaining to the subject property.

Mr. Moeder’s analysis, and court testimony, explained how a knowledgeable property investor would consider and calculate the real estate risks, and apply an appropriately high discount rate to the acquisition.

U.S. Supreme Court Ruling on Previous London Group Case

The U.S. Supreme court recently ruled on a case in which The London Group originally testified in 2002. Gary London testified on the market value of the Balboa Park and Fiesta Island leaseholds. The City had historically been leasing those properties to the Boy Scouts for $1 annually. The ACLU argued that the Boy Scouts organization was discriminatory, and therefore, should not get the benefit of a sweetheart lease. The London Group’s job was to determine the market lease rates for the properties owned by the City.

Read the San Diego Union Tribune article about the recent ruling.