This is the expert report we commissioned to analyze all four appraisals and make recommendations on the path forward. One particularly interesting element is the discussion of Naushon Island in Buzzards Bay. This is an example of another valuable piece of land which was placed in a perpetual trust and is being rented and managed professionally.
There are four appraisals on record, all of which are posted on this site. They represent some of the best evidence of the feasibility of leasing Little Neck, and therefore the illegality of breaking the will of William Paine. See this analysis:
Out of the hundreds of pages of these appraisals, there are literally only 6 pages that one needs to look at (they are all referenced in the analysis). What they show is that while there is plenty of disagreement over the value of the property if sold, there is much more consistency in the value of the property to the Trust if kept. The market rent and implied gross return are in a narrow band, and the numbers from the tenants own appraisal are in the middle of the pack for both. The much-maligned-by-the-Feoffees FinCom appraisal is actually the most conservative in terms of anticipated gross return for a rental scenario.
This plays into the separate, but related, issue of why, even if it were legal, selling is such a bad deal. There are three fundamental reasons:
1) Selling does not create an asset with as much value as rentable land (note that this is a different statement than “the sale is not at market value”). In fact, the $22M generated is almost half the $40.5M average in the above analysis. So the starting corpus value on which to base earnings is almost half.
2) Since none of the appraisers were asked to determine the “value of keeping the land”, none of them attempt to factor in the value to the landowner of keeping the seasonal restrictions on the land. This value is as much or more than the value of the land itself. This is because it would take tens of millions of dollars more in a cash trust to generate and offset the hundreds of thousands of dollars in new costs that would come from lifting these restrictions.
3) In this situation, a safely invested cash trust does not have the earning power of a land based trust. This is demonstrated by the average 4.62% return rates in the attached. Considering that it would be typical for any long term lease to adjust for the CPI, these gross rates can be considered to be the return above inflation. Even considering additional costs unique to land management, and adjusting the lease rates down to reflect seasonal restrictions, the net returns will be well in excess of the most optimistic 2.6% (6% in an environment of 3% inflation with .4% costs) that might be expected from a cash trust . Keep in mind that the School Committee’s own estimate from Summary Judgment was a pessimistic .5% before expenses for this figure. See point 42 of their Summary Judgment Opposition for their analysis.
There is one other important thing to note about this analysis. Look at the last columns, which show each appraiser’s opinion of the highest and lowest value lots on Little Neck. Compare this to the highest and lowest selling prices from the settlement (sale prices for every lot can be found here). A common thing you might hear around town is that “the tenants are going to double their money the next day” if the sale goes through. But what this shows is that this stereotype is not perfect; the reality appears to be more subtle. While the less desirable lots are being sold near “market value”, it is the tenants with the most desirable lots – like those waterfront lots up on the cliff with views down Crane Beach and over to Plum Island – that stand to gain huge windfalls, every dollar of which comes right out of the schoolkids pockets.
UPDATE: We now have the full expert report that lays out the above argument in more detail. It can be found here.
These two documents written by the appraiser for the School Committee were recently obtained through a Freedom of Information Act request. They offer an even more optimistic view of the market rental value than our own expert opinion.
The cash flow analysis also shows a larger stabilized net income ($1.67M per year) than we predict in our financial analysis, but also assumes year-round rental of units which we do not.
This is the appraisal done for the Feoffees by Landvest.