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Appraisals for two properties acquired by the Housing Commission to house homeless residents contradict the agency’s attempt to dismiss public criticism of the price it paid for the properties.
After the Union-Tribune questioned the price the Housing Commission paid for two hotels it planned to convert into housing for homeless residents, the agency’s president sent the paper and some board members for the commission a harshly worded letter defending the transaction.
The paper’s analysis was deficient, Housing Commission President Rick Gentry argued, because it compared the agency’s purchase to other hotel purchases. Since the agency planned to operate the properties as apartments, the paper should have instead run a comparison to recent sales of apartment complexes, Gentry argued.
“The San Diego Union-Tribune’s article compared apples to oranges,” Gentry wrote in a letter to the paper’s publisher, Jeff Light.
But the Housing Commission itself relied on an apples-to-oranges comparison to justify the purchase.
In fact, the commission’s entire argument in defense of the transactions is directly contradicted by the appraisals on which it relied. One of those deals is now under far more intense scrutiny, after agency lawyers concluded the broker it hired to help purchase hotels committed a potentially criminal violation when he bought 50,0000 shares in the owner of the Mission Valley hotel after inking a contract with the agency, but before negotiating the acquisition.
The Union-Tribune story argued that by spending roughly $300,000 per room for each, the commission overpaid for the hotels. The Mission Valley hotel, the paper found, was the most expensive sold in the county last year, at $349,000 per room.
In the letter, though, the Housing Commission made two arguments in defense of the acquisition, and both are contradicted by the appraisals that the agency says demonstrate it paid a fair price.
Real estate and development professionals often refer to a property’s “highest and best use,” meaning the use of the property that provides the best value while still being physically possible and legal.
Multi-family housing, Gentry argued, is the “highest and best use” of the two properties the commission acquired.
“Permanent rental housing is the highest and best use for these properties, and SDHC is operating them as affordable housing for individuals who experienced homelessness,” he wrote to the Union-Tribune.
That is not what the appraisals the agency commissioned determined.
Of the Mission Valley property, the appraisal – conducted by commercial real estate agency CBRE – concluded it was legal to operate a hotel, continuing to use it as a hotel would be the most physically practical option and that a hotel would be financially feasible long into the future. None of the other similar hotels recently sold were intended to be converted to apartments, the appraisers found.
“Based on the foregoing, the highest and best use of the property, as improved, is consistent with the existing use as a hotel development,” the appraisal found. The appraisal for the Kearny Mesa property concluded the same. Both appraisals said that if the land were vacant, the most likely person to buy the property would be a speculative developer, pursuing some sort of commercial use. But with the buildings – as the commission purchased them – the best use was as a hotel.
Scott Marshall, the Housing Commission’s vice president of communications, did not respond to requests for comment.
Gentry didn’t just argue that the most valuable use of the property was apartments, he said that the Union-Tribune’s analysis was incorrect because it only compared the hotel purchases to other hotel purchases.
“The prices SDHC paid for these properties are justified by comparable multifamily housing properties at the time SDHC completed the purchases,” Gentry wrote.
But the appraisers hired by the commission to value the properties did not do what Gentry said the paper should have done, either.
“Our initial search focused on sales of similar Residence Inn by Marriott extended stay hotels in the San Diego market that occurred since January 2019,” CBRE wrote in its Mission Valley appraisal. “We then expanded our search to include sales of other national franchised extended stay, limited service, select service, and full-service hotel properties in the San Diego market, to appropriately reflect market conditions in San Diego.”
The firm relied on eight extended-stay hotels sold in Southern California to value the properties.
It did not compare the hotel properties to any apartment properties that had recently been sold in the region. It did not mention any need to do so.
“The sales utilized represent the best data available for comparison with the subject,” CBRE wrote.
There was a difference between paper’s analysis and the appraisal’s. CBRE compared the properties to other extended stay hotels in Southern California, while the paper relied on sales of all kinds of hotels within San Diego County. Gentry did not refer to that distinction in his letter.