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This article was published 9/6/2016 (1563 days ago), so information in it may no longer be current.

Commercial property appraisers across the city are scratching their heads over the proposed deal that involves city hall paying $20.4 million for 16 acres of Manitoba Hydro transmission corridor land needed to complete the southwest transitway.

Appraisers contacted by the Free Press said Hydro’s figures don’t appear realistic based on the type of property, its location and comparable sales and values, but they said it looks like Hydro used its bargaining advantage to squeeze far more value out of the land than what it is worth.

JOE BRYKSA / WINNIPEG FREE PRESS Construction staff work on the Parker Lands to build the southwest corridor for rapid transit.

Not only is the city paying almost $16 million more than what was considered fair, appraisers said the deal sets a dangerous precedent that will have implications for land purchases by city hall into the future.

"This thing is just going to spin out of control in terms of costs. I don’t know if the politicians who agreed to this deal realize the additional costs they’re going to incur," said one appraiser who asked not to be identified. "As a taxpayer, it outrages me. As an appraiser, it sort of pisses me off."

Members of city council said they were shocked this week to discover they are going to have to pay through the nose for Hydro land many of them thought they were going get for a dollar.

Senior city officials said they believed they had an agreement with Hydro to let an independent appraiser determine the value of 16 acres of transmission corridor lands — which run along the controversial BRT dog-leg route, west of Pembina Highway and then southeast to Clarence Avenue.

But when the appraised value came in at $4.6 million, city staff said Hydro balked at what it called a low price. Apparently in violation of the agreement, Hydro got a second appraisal and claimed the land is worth $32 million to $34 million. Both sides eventually agreed on $20.4 million, with the provision the cost to the city could be lowered if the city doesn’t need all the land and returns some of it to Hydro.

Hydro said no such agreement was in place: that both it and the city agreed to come up with their own value for the land and then they negotiated a fair and final price.

As it turns out, when details of the Hydro deal became public, about 1,000 appraisers from across the country were arriving in Winnipeg for the annual conference of the Appraisal Institute of Canada. The deal set tongues awagging at the Fort Garry Hotel, where the conference is taking place.

Rocky Neufeld, a local commercial appraiser with Colliers International, said the original price of $4.6 million for the Hydro lands, at $287,500 per acre, was in the range of similar property sales.

"Recent (land) sales in the area have been between $200,000 to $450,000 per acre," Neufeld said. "Those lands were ready to develop. Many of the Hydro parcels suffer from poor configuration, limited access, and very poor visibility and most parcels are zoned agricultural."

Neufeld said he had not seen either of the appraisals and could not comment on the deal. Hydro and city hall both declined to release copies of the land appraisal reports.

The administrative report on the Hydro deal offered two explanations for the significantly higher value of Hydro’s corridor land: Hydro’s appraiser used comparable sales values that were higher than when the original appraisal had found; and Hydro’s appraiser had employed the concept of "injurious affections" on land the city wasn’t buying but would become landlocked as a result of the construction of the transit, and therefore would lose value.

Hydro’s landlocked property consists of a small area located west of the transit corridor on the edge of the Parker land, near a pumping station and the Winnipeg Humane Society property. City officials said Hydro’s appraiser never stated the value of the loss caused by the land becoming landlocked, only that "the injurious affection accounted for a significant portion of the" $32-$34-million value of the second appraisal.

Complicating the negotiations between city hall and Manitoba Hydro were two factors: the city desperately needs the Hydro land; and, the city cannot force Hydro to sell the property. While city hall can expropriate land its needs for projects, the city can't expropriate Hydro property.

Deal to be voted on later this month

The Hydro board is expected to vote on the deal June 13, while city council will consider it June 15.

The appraisers contacted by the Free Press said it’s unusual not to identify the dollar loss caused by becoming land-locked and not separating out that figure from the value of the land the city is actually wanting to buy.

One appraiser who reviewed portions of the city’s administrative report, however, said it appears the appraiser hired by Hydro to present the $34-million offer was guided more by what Hydro wanted than market conditions.

"After reviewing the information that you have provided, it seems clear to me that the second appraiser likely did not act independently but rather was guided or influenced to a conclusion by MB Hydro."

The going price for prime commercial land along suburban corridors, Pembina Highway, Portage Avenue, Henderson Highway, ranges between $750,000 and $1.5 million per acre — that’s for serviced land, well located, with commercial zoning in place. The selling price for industrial park lands range from $175,000 to $275,000 per acre.

"Looking where that land is located — Parker Lands, bush and scrub, and then turning south going adjacent to Fort Garry Industrial Park — I just don’t have a clue how an appraiser could work that number up to $2 million per acre. You’re over and above what prime commercial land, ready to develop, is worth," said one appraiser. "I can’t for the life of me understand how we get to this number of $32 million, $34 million."

Contrast the Hydro deal with a deal the city made with the University of Manitoba. Transit needed 12 acres of the U of M’s former Southwood golf course property — prime, serviced developable land, fronting along Pembina Highway — to route the transitway into the campus. The U of M agreed to turn that land over to the city for a dollar.

A source familiar with the city’s preparations said civic officials believed they’d also get Hydro’s land for a dollar. "The U of M agreed to transfer their lands for a dollar. I don’t know where all this changed."

The Hydro property is considered "corridor" lands, which in the industry includes land bearing rail lines, pipelines and hydro transmission lines — long, narrow pieces of property generally used for no other purpose. Even though the Hydro lands will be used for the transit roadway, when determining appraised value, it’s the "best and highest possible use" that determines the value, tempered by "what’s legally permissible."

The industry practice to set the value of corridor lands is to look at the lands along the corridor and base the price on what those properties are worth. The north portion of the Hydro corridor runs through the area known as the Parker Lands — poorly drained wetlands and scrub lands. Running southeast towards Clarence Avenue, on the west side of the corridor is the Fort Garry Industrial Park; on the east side, it’s mostly single-family homes and funeral home and cemetery.

Could that Hydro corridor land ever be developed into a commercial, retail property? It would need to be rezoned, with servicing, permits, and a host of fees charged by the city. The city won’t even allow any new development in that area unless any runoff is contained onto the same property; or, eventually ties into the massive retention pond that will be built in the Parker Lands and there will be costs to connect to pond.

The opinion of the development industry is that land is not developable.

"Why haven’t they been developed in the last 60 years, why has there been no initiative at Hydro, if this land had any value, to get it up themselves, move the (transmission) lines and put it on the market — because there’s no money in it, there never has been."

Hydro corridor land was also involved in the Waverley West development. Manitoba Housing expropriated a golf course property that had a long-term lease with Hydro. Manitoba Housing used a professional appraisal firm that concluded the Hydro corridor land had little market value because of its long, narrow configuration and there was "no potential for building development on its own." Manitoba Housing’s appraiser set a price of $17,500 for that Hydro corridor land. Eventually, the Land Valuation Appraisal Commission set the value at $200,000 per acre.

aldo.santin@freepress.mb.ca