Attorney General Andrew Cuomo’s investigation into the state’s purchase of Lyon Mountain and nearby lands from the Adirondack Nature Conservancy stems from a perception—fostered by the New York Post—that the state overpaid for the property.
It’s easy to see how suspicions might arise. The Nature Conservancy paid $6.3 million for the twenty thousand acres in 2004 and sold it to the state four years later for $9.8 million.
A $3.5 million profit, right?
Well, not so fast. The conservancy says it spent $3.4 million in taxes, interest, and other “carrying costs.” If these are taken into account, the organization made only $100,000 on the deal.
Nevertheless, the conservancy says the state did not factor the carrying costs into the purchase price. Yet Fred Monroe, executive director of the Local Government Review Board, is not so sure. It was Monroe who tipped off the Post to the story.
In an interview with the Adirondack Explorer last week, Monroe suggested that the state could have inflated the price without the conservancy’s knowledge, out of a sense of obligation to its partner in land preservation.
Of course, this would require that one or more of the state’s appraisers were in on the fix. But perhaps it needn’t have been an outright conspiracy. Appraising is not an exact science. As Monroe notes, an appraiser can place an estimate on the low end or high end of a range in accord with his client’s interest. Thus, the appraiser for the homeowner is likely to come up with a higher appraisal for a house than the appraiser for the potential buyer.
The difference in the Nature Conservancy deal is that the buyer (the state) presumably wanted a high appraisal.
If we accept all this, there is still a problem with Monroe’s theory.
As it turns out, the conservancy says it hired Fountain Forestry to appraise the twenty thousand acres in 2004. Since the conservancy was buying the property, we can assume, following Monroe’s own logic, that the appraiser would low-ball the estimate.
Fountain’s appraisal: $9.1 million.
That’s $300,000 higher than LandVest, one of the appraisers hired by the state, valued the property in 2008, four years later. The state’s other appraiser, the Sewall Company, applied different criteria and came up with an estimate of $11 million—or $1.2 million more than the state ended up paying.
So we have three professional appraisals from private companies, ranging from $8.8 million to $11 million.
What’s more, an expert in the state Department of Environmental Conservation critiqued the LandVest and Sewall appraisals and came up with his own estimate of the land’s value: $9.5 million. Then a second DEC expert reviewed the two companies’ appraisals again and his colleague’s critique and came up with yet another estimate: $9.8 million. This is what the state paid.
That gives us five appraisals. The purchase price, though based on the fourth-highest appraisal, falls in the middle of the range.
The question remains: if the property was appraised at $9.1 million in 2004, why did the Nature Conservancy pay only $6.3 million?
There is a simple explanation. The appraisal looked at the property in isolation. In fact, the Nature Conservancy acquired the land as part of a three-way transaction involving 104,000 acres owned by Domtar Industries. The conservancy bought twenty thousand acres, and Lyme Timber bought the rest. Given the scale of the transaction, the conservancy was able to negotiate a lower price—a wholesale price, if you will.
Furthermore, Domtar and Lyme might have been willing to cut the conservancy a good deal as a reward for brokering the transaction.
The New York Post story that prompted Cuomo’s inquiry didn’t delve into any of these details. It merely assumed, based on the difference between the two selling prices, that the conservancy pocketed a huge profit at taxpayer expense.
The Post‘s assumption seems overly simplistic. Nevertheless, we now have a state investigation. Of course, it will be the taxpayers who will be paying for that.
Photo from Lyon Mountain’s summit taken by Phil Brown.