Complex Commercial Litigation
Taking Expert Valuation Skills
to the Next Level
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Speakers
Drew K. Kapur, Esq.
Partner
Duane Morris LLP
Richard Marchitelli, MAI, CRE, FRICS
Executive Managing Director
Cushman & Wakefield
U.S. Practice Leader
Dispute Analysis and Litigation Support Practice
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Introduction
“The slower you move, the quicker you die.”
- Ryan Bingham (George Clooney)
Up in the Air
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“Failing to prepare, is preparing to fail.”
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“The best bridge builders are already on the
other side.”
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Appraisers’ Advantages
• Highly defined body of knowledge
• Training and education
• Extraordinary practical experience
These assets provide appraisers with a powerful
competitive advantage (that is seldom used) in
the litigation arena over other experts providing
the same services
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Appraisers’ Challenges
Problems
• Resistance to change
• Limited resources
 Small size
 Lack of critical mass
 Limited capital
• Unwillingness to think outside of appraisal “box”
 “It doesn’t fit the template”
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Specialization
Body of knowledge grows so large that specialization
inevitably results
• Medicine
• Law
• Accounting
• Appraisal
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Appraisal Specialization
Hospitality
• Hotels
• Gaming (casinos)
• Time shares
Retail
• Regional malls
• Other retail
Self-Storage
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Appraisal Specialization
Energy and power
Sports and entertainment
Health Care
• Hospitals
• Skilled Care
• Managed care
• Others
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Appraisal Specialization
Residential
• Multi-family
• Student housing
• PUD
• Single family
Golf
Marinas
Convenience stores
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Appraisal Specialization
Airports
Waste
• Landfills
• Recycles
Agribusiness
Litigation
Others
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Litigation Support Service Providers
Competition consists of
• Litigation consulting firms
• Accounting firms
• Boutiques
• Other appraisers
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Why Lit Support Specialists
Special expertise and knowledge in required including
understanding
• How the real estate and capital markets operate
• Valuation theory
• Damages theory (separate BOK)
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Why Lit Support Specialists
• Nuances of litigation
 Legal theories
 Case and statutory law
 IRS regulations and guidelines
 Rules of court
 Federal Rule 26
 Daubert issues and exclusion of a witness
 Discovery rules
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Why Lit Support Specialists
High stakes litigation requires a specialist willing to make
commitments to
• Performing the necessary, relevant research and
understand the theory of the case
• Willingness to testify and have your actions,
personal character, and expert report subjected to
intense scrutiny
• Firm commitment to be available at time of trial to
be mentally engaged and available to assist in
preparation and during the actual trial
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Opportunities
Where they are not
Where they are
• Law firms
• In-house counsel and corporations
• Debt holders (not mortgage departments of banks)
• Property owners
• Government (limited opportunities beyond
eminent domain)
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Engagement Protocols
Duration of an engagement can be weeks, months, or years
• Requires team approach with requisite experience,
skill sets, and competencies
• Billing is normally hourly with periodic (e.g., monthly)
invoicing
• Expenses are reimbursable
• Reimbursement for administrative overhead
• Retainers (three basic types)
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Damages Model
Universal Damages Model
Today
Event 1
Event 2
Historical/Estmated
"But For" Income
Income
LOST INCOME
Actual Historical
Income
1
2
3
4
5
6
7
8
9
10
Time
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Understanding the engagement1
Are you qualified to be an expert?
•Stay within your area(s) of expertise
•You cannot be an expert in all things
•What you say, can and will be used against you to
impeach your credibility for years to come. The litigation
arena is a small community in which lawyers and others
research and share information regarding the prior
testimony, writings, and reports of witnesses.
_ ________________
1. Visit www.wisehart-wisehart
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Understanding the engagement
Daubert or similar challenges
• Methods must be able to be tested
• Methods must be accepted and used by your peers
• No “junk” science
• Other criteria
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Understanding the engagement
Know rules of jurisdiction
• Reports
• Written
• Oral
• If written report, need to understand the scope,
content, and format imposed by the local
jurisdiction
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Case Study No. 1
Plaintiff is suing for breach of fiduciary duty and
overcharges by joint-venture partner
• Nine major properties in various stages of
completion plus portfolio of dozens of big box
stores
• Allegations that joint venture partner failed to
complete a single construction project on time or
on budget, failed to actively lease and sell
properties, and overcharged for insurance,
management, and maintenance
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Case Study No. 1
Necessary to research, review, and analyze
• Investment memoranda and partnership
agreements
• Detailed history of each property
• Numerous financial models and spreadsheets
• Pleadings and deposition testimony of important
witness
• Actual performance of each property from date
acquired (all purchased on different dates)
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Case Study No. 1
Necessary to research, review, and analyze (cont’d)
• Trade areas of each property
• Representations made by JV partner regarding rent
levels achievable, when stabilized occupancy
would be reached, when construction would be
completed, when sales would occur, etc.
• Comparison of what was promised to what actually
took place (control for “noise” in the data)
• Compare categories of alleged overcharges to
market expenses for same costs
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Case Study No. 2
Indian Nation claim against the State of New
York regarding damages for underpayment of
250,000 acres that were purchased by the
state in a number of transactions between
1795 and 1824
Claim is for financial damages only. Indian
Nation was not asserting right or title to the
land
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Case Study No. 2
Issues for the experts
• Is there factual evidence proving that the
Indian Nation was paid less than market value?
• What is the measure of damages
 Land value today discounted back to the
dates of each purchase?
 Difference between what the state actually
paid and the property’s market value?
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Case Study No. 2
• Difference between payments and market value
 How is the difference established?
 How can the present value of the damages be
calculated when no single index existed over
the entire period that could provide a
benchmark and the period’s history was often
volatile, including bank failures, depressions,
natural disasters, and armed conflict (e.g.,
War of 1812, the Civil War, and two world
wars)?
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Case Study No. 3
Lender liability case involving luxury condominiums
• Construction loan assigned from one lender to
another
• Second lender taken over by FDIC in 2007
• After takeover, the FDIC funded 4 monthly draws
and then stops funding
• Project remained partially completed; 2008
downturn occurs and damages any prospect for
refinancing or completion of construction in the
immediate future
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Case Study No. 4
Regional Mall
• Anchor store had gone dark due to
bankruptcy
• Another major anchor department store
decided to vacate its space 4 years
prematurely (breach of operating agreement)
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Case Study No. 4
• Co-tenancy clauses presented a potentially
cascading effect of vacancies
• Needed to develop “but for” or baseline
scenario and then project what was likely to
happen
• Inputs (assumptions) related to co-tenancy
and lease renewals were largely based on
retails sales per square foot
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Case Study No. 4
• Additional Problems
 Complex model to understand/explain
 Numerous inputs
 More than one year had elapsed to time of
the mediation (trial); model needed to be
updated
• Other expert at mediation was not an
appraiser
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Case Study No. 5
Alleged breach of contract by major hotel company
• Property located western U.S.
• Consisted of a master planned community of
luxury home sites, several golf courses, and a
large site at center for luxury resort hotel
• Contract of sale to resort hotel required
construction of luxury resort
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Case Study No. 5
• Hotel company breaches contract and fails to
build
• Necessary to develop “but for” scenario
 Sales of home sites around golf and resort
 Financial performance of golf courses in
residential communities with luxury
resorts
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Case Study No. 5
• Damages resulting from breach of contract
 Comparison of “but for” scenario (with
luxury resort hotel) to scenario without
luxury resort hotel reflecting impact of the
breach on residential prices and golf
course operations
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Case Study No. 6
Groundwater contamination – Background
• Contamination of 1.5 acres of 31.5-acre site
• Responsible party accepted cost of remediation
• No liability of property owner for cleanup
• Contamination is 10 feet and deeper; water
table is 6 feet. Therefore, natural features (i.e.,
not contamination) limit excavation
• Restrictions on well drilling imposed
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Case Study No. 6
• Case studies of similar properties suggest no
damages
• Public water readily available. Property owners in
the area do not drill wells
Necessary to review
• Pleadings and deposition testimony
• Statutes relating to contaminated properties
• Consult with environmental engineers
• Valuation and damages literature
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Case Study No. 6
Hierarchy of proof in contamination matters
• Empirical evidence
• Case studies
• Interviews and surveys
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Scope of Work – Review/Rebuttal Reports
Scope of work may include review
• Appraisal report or other expert report (e.g.,
damages model)
• Workfile
• Transcript of deposition testimony
• Any combination of the above
If preparing an appraisal review report, it must comply
with Standard 3
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Standard 3 Compliance Includes Many things
Standard 3 compliance includes the following criteria,
among others
• Date of the review
• Effective date of review
• Edition of USPAP in effect on the date of the report
under review
• Other USPAP-imposed requirements
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Standard 3 Compliance Includes Many things
• Identify
 Report under review
 Date of that report
 Effective date of value
 Value appraised
• Other requirements
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Scope of Work
• Whether property will be inspected
• Data (e.g., sales, rentals, economic information) is
complete, accurate, and property analyzed,
developed, and presented
• Other documents that will be examined as part of
the review process
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Scope of Work
Example scope of work – assuming review of
appraisal report, workfile, and deposition testimony
• Evaluate completeness of report/work
• Adequacy and relevance of data presented
• Propriety of adjustments to the data
• Appropriateness of valuation techniques
employed
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Scope of Work
• Whether conclusions expressed are appropriate
and reasonable
• Identity material errors, if any
• Determine whether report under review complies
with generally recognized and accepted valuation
principles and damages theory
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Scope of Work
• Review deposition testimony for inconsistencies
with written report and conformity with generally
recognized appraisal methods and damages
principles
• Review workfile for information that may be
inconsistent with written report
 Contradicts written report
 Data contrary to the appraiser’s opinions that
was either ignored or overlooked.
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Appraisal Review/Rebuttal Reports Presentation
Do not make it look like an appraisal or an old-style
appraisal review
Use blank paper, double spacing
Include a table of contents
Organize with headings that are numbered
Avoid bold face or italicized text
Make free use of footnotes and attached exhibits
Focus on organization, reasoning, clarity, accuracy, and
brevity
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Appraisal Review/Rebuttal Reports
Use active voice
Use first person – avoid referring to yourself in the
third person
If you need to, use party names – avoid using
Plaintiff and Defendant
Avoid invective and personal attack on opposing
expert
Be professional and courteous
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Appraisal Review/Rebuttal Reports
May want to refer to the report itself as opposed
to the opposing expert’s name
Do not use boilerplate (no one is fooled and it
suggests a lack of comitment and attention)
Do not use rote, meaningless appraiser-like
wording (e.g., “misleading”)
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Avoid biased, perconceived reaction - merely because
an opposing expert disagrees with you does not mean
that he/she is unethical ( the appraiser’s disease).
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Other Lessons
Verify and reconfirm accuracy of all statements you
make. This is vitally imortant.
Avoid statements that cannot be forcefully
supported
 Avoid any and all speculation. (If you don’t
know with reasonable certainty, don’t say it)
• Do not use of “assumption”
 Has pejorative connotation in litigation
 Use “input” instead
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Other Lessons
•
Avoid ambiguity and imprecision
 Be absolutely clear
 Think of all opinions expressed and
statements made in terms of ability to be
distorted on cross examination or at
depositions
• Avoid making statements or relying on
information or data that has not been properly
confirmed
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Drew K. Kapur, Esq.
Partner
Duane Morris LLP
Taking Expert Valuation Skills to the Next Level
• Role and Issues for Expert Appraisers in Legal
Process
• Condemnation and Takings Issues
• Severance Damages Issues in Condemnation
• Special Damages-Related Issues in
Condemnation
• Reasonable Probability Issues in Valuation
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EXPERTS
Generally, your role is as…
• Team Player
• Salesman v. Report Writer
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EXPERTS
Discovery…
•Listen to the Questions
•Understand the Questions
•Understand why you are being asked the Questions
•Answer the Questions
•Shut up (Don’t volunteer any additional information)
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EXPERTS
Examination
• Direct
 Jury interaction
• Cross
 Jury interaction less important
• Rebuttal
 Assignments where you are also testifying
on direct
 Assignments where your testimony is limited to
rebuttal
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EXPERTS
Special Issues for Appraisers
Advocacy:
• An appraiser must not advocate the cause or
interest of any party or issue.
[Ethics Rule, Conduct, USPAP 2012-2013 Edition]
 Helping attorney prepare for cross examination
 Rebuttal
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CONDEMNATION
Just Compensation:
• An owner of property is entitled to be put in as
good a position pecuniarily as if his property
had not been taken.
[Olson v. United States, 292 U.S. 246 (1934)]
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CONDEMNATION
Fair Market Value:
• What a willing Seller would accept and a
willing Buyer would pay, neither being under
any compulsion to act
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CONDEMNATION
Takings:
• Total: Single component of Just Compensation
 Value of property
• Partial: Two components of Just Compensation
 Value of Property
 Diminution of value of remainder (Severance
Damages)
 Two formulas to calculate Just Compensation
in a partial taking case
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CONDEMNATION
1. “Per Se” Analysis
Value of property + Severance damages = Just
compensation
• Accurate, but not practical
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CONDEMNATION
2. “Before and After” Analysis
Value of property before taking
(as unaffected by the taking)
– Value of property after the taking
= Just compensation
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CONDEMNATION
Severance Damages
• Compensable (protectable property rights}
1. Loss of parking/vehicle display
2. Lot size/shape/building envelope
3. On-site circulation
4. Drainage/grading
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Sharkey’s Bar & Grill – Taking
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Sharkey’s Bar & Grill – Area #1
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Sharkey’s Bar & Grill – Area #2
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CONDEMNATION
Severance Damages
•Compensable (protectable property rights}
5. Proximity
6. Noise/dust/fumes
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New St. Mary’s Cemetery #1
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New St. Mary’s Cemetery #2
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New St. Mary’s Cemetery #3
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New St. Mary’s Cemetery #3
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CONDEMNATION
Severance Damages
• Compensable (protectable property rights}
7. Nonconformance with zoning / land use
controls
- Pre-existing, non-conforming status
8. Cures (interior / exterior)
- Cannot exceed damages
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Olga’s Diner #1
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Olga’s Diner #2
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Olga’s Diner #3
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Olga’s Diner #4
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Olga’s Diner #5
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Olga’s Diner #6
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Olga’s Diner #7
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Olga’s Diner #8
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Olga’s Diner #9
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CONDEMNATION
Severance Damages
• Noncompensable (nonprotectable property rights):
Consistent with definition of Just Compensation?
1. Access per se
- Right of reasonable access
- “Police power”
2. Circuity of travel
- No property right
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CONDEMNATION
Severance Damages
• Noncompensable (nonprotectable property rights):
Consistent with definition of Just Compensation?
3. Diversion of traffic
- No property right
4. Visibility
- View in (nonprotectable)
- View out (protectable)
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CONDEMNATION
Severance Damages
Utah Department of Transportation v.
Admiral Beverage, 275 P.3d 693 (Utah 2011)
1. Recognition that it is extremely difficult for an
appraiser to segregate and apportion market value
based on artificial distinctions between protectable
and nonprotectable property rights
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CONDEMNATION
Severance Damages
Utah Department of Transportation v.
Admiral Beverage, 275 P.3d 693 (Utah 2011)
2. No set of conventions that appraisers can readily
apply when they are asked to value a property in
reference to protected and nonprotected property
rights; impossible to isolate and identify the values
associated with loss of view and loss of visibility
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CONDEMNATION
Severance Damages
Utah Department of Transportation v. Admiral
Beverage, 275 P.3d 693 (Utah 2011)
3. Comparable sales are not available in which buyers
and sellers ignore value that can be attributed to
categories of certain nonprotectable property rights
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CONDEMNATION
Severance Damages
Utah Department of Transportation v.
Admiral Beverage, 275 P.3d 693 (Utah 2011)
4. “Given the extreme difficulty, if not impossibility,
of properly apportioning value based on artificial
distinctions between protectable and
nonprotectable property rights,… [appraisers must]
resort to rank speculation when attempting to
exclude the loss of visibility from fair market value.”
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CONDEMNATION
Severance Damages
• Noncompensable (nonprotectable property
rights): Consistent with definition of Just
Compensation?
5. Business loss / lost profit
- Speculation
- Highest and Best use v. business loss /
lost profit
* Gallonage
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CONDEMNATION
Special Damages-Related Issues
1. Condemnation v. Ad Valorem Assessment Appeals
– Noncompensable / nonprotectable property
rights)
2. Benefits
– General benefits
– Special benefits
* “Before and After” analysis
* Offset damages
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CONDEMNATION
Special Damages-Related Issues
3. Temporary takings / construction easements
– Duration
– Area impacted
* Area encumbered only
* Remainder of site
– Valuation
* Rental value
* Discounted After value
4. Permanent easements
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REASONABLE PROBABILITY
Date of value (snapshot in time)
• Existing conditions
• Future conditions
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REASONABLE PROBABILITY
Date of value (snapshot)
• Existing conditions
• Future conditions
Zoning Change
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REASONABLE PROBABILITY
Date of value (snapshot)
• Existing conditions
• Future conditions
Variance
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REASONABLE PROBABILITY
Date of value (snapshot)
• Existing conditions
• Future conditions
Site Plan approval
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Taking Expert Valuation Skills to the Next Level
• Role and Issues for Expert Appraisers in
Legal Process
• Condemnation and Takings Issues
• Severance Damages Issues in
Condemnation
• Special Damages-Related Issues in
Condemnation
• Reasonable Probability Issues in Valuation
97
Contact Information
Drew K. Kapur
Duane Morris LLP
215-979-1385
DKKapur@duanemorris.com
Richard Marchitelli
Cushman & Wakefield
704-916-4447
richard.marchitelli@cushwake.com
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