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Appraising railroad corridors for recreational trail use.

ABSTRACT

One of the great observations from the annals of The Appraisal Journal is "history reveals that mankind has not always been so fortunate as to have great truths revealed just when they were most needed." In the valuation of railroad corridors for interim recreational trails, there is a great need for being aware of the applicable truths and regulatory guidance for developing a good scope of work and using proper methodology. The premise of this article is the net liquidation value methodology in corridor appraisal results in a market value when there is no current economic demand for the corridor.

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This article is about appraising rail corridors that are being considered for a trail project under a rails-to-trails or recreational trails program, which is a federal-assistance program. The premise of the article is that the net liquidation value methodology results in market value when there is no current economic demand for the corridor. This premise is based both on appraisal analysis and regulatory guidance for federal-assistance programs.

In Leonard C. Smith's 1956 Appraisal Journal article on the bundle of property rights, Smith observes that "history reveals that mankind has not always been so fortunate as to have great truths revealed just when they were most needed." (1) It also seems that great truths are not always remembered when they are most needed. Concepts such as the bundle of rights, highest and best use, supply and demand, and scope of work all involve great truths that have long been revealed. However, they need to be remembered when valuing old rail corridors for recreational trail projects. So, consider this article another stick in the bundle of articles about corridor valuation, specifically those about rail corridors being placed in the interim trail use in the recreational trails program.

The discussion in this article focuses on long-known appraisal truths and how they apply in corridor valuation.

Historical Background

At its peak in the early twentieth century, the national rail system had more than 270,000 miles of rail corridors, but this declined to about 141,000 miles by 1990.

In the 1920 Transportation Act, Congress first directed the Interstate Commerce Commission (ICC) to regulate the abandonment of railroad lines. (2) There have been a number of legislative acts since then, and the National Trails System Act (Trails Act) was enacted by Congress because of what was considered a national crisis of rail corridor loss. (3) The Trails Act allows local public agencies and some private organizations to preserve the rail corridors under the recreational trail program (RTP). The conversion of unused train corridors to trail use while maintaining the corridor for possible future railroad use is called railbanking. This approach prevents corridors from being disassembled and lost; it also often enhances the communities where the trails are located. (4)

Under this voluntary program, a railroad company can transfer its interest--be it fee simple or an easement--to a buyer for interim recreational trail use and retain a future right to reclaim the property. (5) So, if a line is not economically viable as a going concern for a rail carrier, the railroad can dispose of ongoing costs and responsibility for the line while avoiding permanent abandonment. Examples of rail corridors converted to trails are shown in Figure 1.

The transfer is referred to as a discontinuance of service for the interim use and is accomplished through an "Offer to Purchase and Interim Trail Use/Railbanking Agreement." (6) The transfer program prevents parts or all of a corridor held in easement from being reclaimed by adjacent property owners and the interim use period can be in perpetuity. The corridor interim use and railbanking is a federally regulated process to preserve rail corridors for reactivation at any time. (7)

In the 1990 case Preseault v. Interstate Commerce Commission, the US Supreme Court upheld the regulatory preemption of reversionary rights as a constitutional exercise of congressional power. (8) However, the Supreme Court remanded on the issue of compensation for reversionary interests, saying even if the trails statute is a taking to the holder of the reversionary interest, compensation to a holder of the revisionary interest is available under the Tucker Act for claims related to government actions. (9) There are differing positions on the issue of compensation to adjacent landowners, and not surprisingly, there has been additional litigation since the Preseault decision. Currently, the issues of reversionary interest and compensability are being interpreted on a case-by-case basis. (10)

A Great Truth: The Appraiser Has to Know Who Owns What

There is really no such thing as owning all the sticks in the bundle of property rights; the government automatically retains some rights, as recognized in eminent domain, zoning control, escheat, police power, and taxation. Rail corridors are likely to have even more sticks missing from the bundle of rights. Therefore, the appraiser needs to know what is being appraised. This is basic and simple, but its significance sometimes gets lost The railroad's interests can be convoluted by years of easements, agreements, restrictions, etc. It is possible the only stick owned by the rail carrier is a right-of-way easement for use as a rail corridor. The rail carrier should be able to say what rights are actually to be transferred relative to the corridor segment being appraised because the Surface Transportation Board requires the carrier to identify what interest is held. This is important because even if a rail carrier wishes to divest itself altogether of a rail line, the government controls where, when, and how this is done.

So, in the defining-the-problem stage of the appraisal process the appraiser needs to know what rights are being appraised and to be aware of every easement, use/license/lease agreement, restriction, and encumbrance in place at the time of the appraisal, as best can be determined through due diligence. The appraiser also must know what restrictions the seller is including in the pending transfer to the buyer. In the previously mentioned example of a Purchase and Interim Trail Use/Railbanking Agreement, the transaction agreement is for surface rights only. The seller is retaining all rights for placement of underground utilities and pipelines as well as the rights to all subsurface natural resources. Therefore, it is necessary to actually identify what interest is held, what is being transferred, and consider the effect of what is not transferred. A statement such as "subject to encumbrances, easements and restrictions in-place" will not suffice. This is where the bundle of rights concept is relevant since it is possible only a small portion of the corridor will have unfettered utility to the buyer even though the whole corridor is being transferred.

For example, a to-be-abandoned rail line has only a 10% fee simple interest and 90% easement interest. One appraiser gives no consideration to this and appraises it equal to 100% fee ownership. A second appraiser considers the same 90% easement as warranting significant discounting (50%+). There is clearly a significant lack of consistency in approaching the same appraisal problem by the appraisers.

A Great Truth: Not Every Long Narrow Strip of Land Is a Corridor

What is a corridor? The Dictionary of Real Estate Appraisal defines a corridor as "a strip of land used for transportation or transmission purposes." (11) However, what constitutes a corridor has been the topic in many articles. In his 2002 article, Seymour (12) states,

   Not every long, narrow strip of land or property rights
   meets the definition of a corridor. Some never did,
   and others once did but have now been "abandoned"
   because they no longer perform the defined function
   of creating economic or social value by connecting the
   end points. (13)


In other words, if there is no need or demand to connect points, it is not a corridor. However, the term "social value" jumps out from Seymour's statement. While both economic factors and social factors are forces of influence on value, " Value expresses an economic concept" (14) Some rail lines and rail carriers (e.g., Amtrak) are subsidized to continue operation because of the perceived social benefit they provide. Even with the connecting of endpoints still of relevance, the social benefit does not equate to a monetary value. Regardless of the social factors associated with a recreational frail, it often has little to do with connecting endpoints. Those using the corridor for walking or biking typically depart from Point A and have to return to the same point; so, connecting endpoints is not mandatory for recreational use. An earlier Dolman and Seymour article (15) is on point, saying that a long narrow strip of land has value because of its ability to connect two points if there is economic advantage to connecting the points. The pivotal word here is if. If the buyer is not relying on connecting Point A to Point B or will realize no economic use from purchasing the property, then it seems what was a corridor is now just a narrow strip of land. However, even if the rail carrier has no remaining going concern, the corridor may still have economic value as a corridor for some other ancillary or longitudinal users, which definitely has to be considered.

A Great Truth: Highest and Best Use Is the Epicenter of the Appraisal

What is the highest and best use of a long narrow strip of land? In appraising rail corridors, as with most appraisals, the fundamental principle, question, and analysis is highest and best use. The Dictionary of Real Estate Appraisal states, "The four criteria highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximal productivity." (16)

Legal Permissibility

The issue of abandonment is germane to highest and best use. The Surface Transportation Board (STB) controls whether a to-be-abandoned rail line is available for subsidy, for sale for continued rail use or interim trail use, or if abandonment proceedings can proceed. The Surface Transportation Board has the legal authority to issue the Certificate of Interim Trail Use and Notice of Interim Trail Use. Use of the rail-line property under a recreational trail program is a use in lieu of abandonment.

When the rail line was active, the railroad presumably could allow any other user it chose to share its right of way. Once abandoned, however, the permissible uses would likely depend on local municipalities. One interpretation of legal permissibility (which this article disputes) is that as long as a corridor is under governmental jurisdiction as a corridor it cannot be physically disassembled and thus its highest and best use is that of a corridor by fiat. However, even though a STB trail use certificate (17) preserves the corridor for the possibility of someday being an active rail corridor again, that does not mean the appraiser has to suspend all logic and analysis as to the rail corridor's economic viability as a corridor when appraised. Jurisdictional control for noneconomic reasons should not stop further analysis.

An appraiser cannot conclude trail use or recreational use as the highest and best use and be consistent with the Uniform Appraisal Standards for Federal Land Acquisitions ("the Yellow Book"), which provides guidance for appraisal criteria for federal-assistance programs. The Yellow Book sets clear parameters for the basis of highest and best use, stating, "highest and best use is driven by economic considerations and market forces, not by public interest" (18) The intent of interim trail use is to preserve rail corridors in perpetuity or until again needed for rail use; this is not an economic use and not a highest and best use. The Yellow Book also states,

   The appraiser's estimate of highest and best use must
   be an economic use. A noneconomic highest and best
   use, such as conservation, natural lands, preservation, or
   any use that requires the property to be withheld from
   economic production in perpetuity, is not a valid use
   upon which to estimate market value. (19)


So, based on this guidance, it simply cannot be said that a highest and best use is for trail use or is a corridor because the interim trail use agreement keeps the subject under STB jurisdiction. The highest and best use analysis and conclusion can be, and should be, based on market forces.

Physical Possibility

Physical possibility in highest and best use is viewed in the context of what is legally permissible. Continued use as a rail corridor is physically possible and legally permissible as would be other longitudinal uses, such as for pipelines or fiber optics. There are many other physically possible uses through segmentation of the corridor as well, which is consistent with the principle of the across the fence (ATF) methodology being used in the valuation process.

Financial Feasibility

Financial feasibility looks at economic considerations and must examine what uses would make financial sense for the property. Participation in the Notice of Interim Trail Use process indicates that the rail carrier has ceased operations on a specific rail line and has filed notice of abandonment with the STB. It also indicates no other party has come forward with an interest in continuing the line as an active rail. It is unlikely the property would have reached the abandonment stage if there was a sufficient economic interest for any other corridor use. Consequently, financial feasibility as a corridor is in doubt and other uses need to be analyzed.

Maximal Productivity

In the context of the three previous highest and best use parameters, what is the maximally productive use? This is what the appraiser has to determine, but the maximally productive use cannot be a noneconomic use in perpetuity and still be consistent with basic appraisal fundamentals or the Yellow Book guidelines. Appraisers should analyze the land as if vacant and available for its highest and best use as determined by a market-economic analysis, not as determined by a public policy goal of preserving rail corridors.

The Interagency Land Acquisition Conference (20) published a position paper on the issue of noneconomic highest and best use in the context of preservation lands acquisitions but it is applicable here as well; in referencing appraisals based on noneconomic highest and best use, it notes,

   what is being estimated was not value, but a prediction
   of the price at which a transaction will be consummated
   between two specific parties rather than market value. (21)


Because transactions in the recreational trail program have similar circumstances--taking property out of economic production--appraisers need to take care not to be price predictors for the two specific parties involved. (22)

A Great Truth: Supply and Demand Is the Gist of It

A key concept in highest and best use analysis is supply and demand; yes, again back to the basics. To assume a rail corridor no longer in use as such still has economic value as a corridor and should be valued as such without an economic analysis, ignores supply and demand altogether. Even if the corridor being appraised is the supply of long narrow strips of land in the general vicinity, that fact does not necessarily create value as a corridor. As previously mentioned, it seems doubtful that there is economic demand for a corridor if the railroad has discontinued service, is abandoning the line because it is no longer profitable, and no other corridor user has shown an interest in the corridor.

Conversely, if there are potential users in the market for a corridor, then there is identifiable demand for continued use as a corridor. If the appraiser can definitively support that the rail line right of way has a continued economic highest and best use as a corridor, the across the fence (ATF) methodology with a corridor factor (CF) is an acceptable appraisal method, i.e., ATF x CF. (23) A corridor factor (also called an enhancement factor) is "the ratio of market value (or market price) of a corridor to the corridor's across the fence value." (24)

The premise that STB jurisdiction precludes the appraiser from deciding the highest and best use is something other than a corridor ignores supply and demand, effectively setting a minimum for value. It is the appraiser's due diligence responsibility to investigate demand factors, not make unsupported assumptions. As the recent article by Schmick (25) points out, "too often, appraisers rely on a reference to an unknown future demand for new users without any support from longitudinal users in the current economic environment."

A Great Truth: Across the Fence Theory Is an Accepted Concept, But Corridor Factor May Not Always Be a Factor

The across the fence (ATF) concept of value for rail corridors has been used within the railroad industry for more than a century. The ATF approach was imposed on railroad companies by the Interstate Commerce Commission, (26) but its wide acceptance within the appraisal industry may only date back 35 years. (27) ATF value in corridor valuation is "a value opinion based on comparison with adjacent lands including the consideration of adjustment factors such as market conditions, real property rights conveyed and location." (28) The underlying concept is the subject will have at least the same base value as the land it abuts or passes through. According to Rahn, this is based on the theory that if the corridor was not there, the lands making up the corridor would be part of the connecting land and, therefore, would have the same value. (29) At the heart of this methodology is the hypothetical concept that the corridor is not there. However, it is not a hypothetical condition of the appraisal assignment. The underlying premise of an appraisal--of an appraiser's opinion of value--is the result of the hypothetical concept of a transfer of the interest appraised as of a certain date. The point is the underlying hypothetical conditions of concepts are not subject to disclosure as are the underlying hypothetical conditions of an assignment. That said, the ATF value concept should be explained within the report under scope, if nowhere else, so the client can understand the value concept.

Whether or not a corridor is still viable as a corridor is the basis for how ATF is incorporated into the valuation process and also is the basis for if, and how, a corridor factor (CF) is incorporated into the valuation process. When a corridor is still a corridor, ATF value multiplied by a market-derived corridor factor (ATF x CF) is the currently acceptable valuation methodology. A caveat offered here is, the corridor factor should be calculated from the sales of economically viable corridors having similar ownership interests. Any dissimilarity due to use agreements, license agreements, leases, or encumbrances needs to be considered.

Conceivably, if a corridor cannot be operated at a profit for rail use it could still be under the recreational trails program, even if subsurface rights or other rights are generating some ancillary demand and income. The example Interim Trail Use and Purchase Agreement mentioned previously includes a section on retained interests. In the example, the seller retains the rights for underground utilities and pipelines greater than a mile in length, allowing for an annual maintenance fee to be paid to the buyer (of the corridor) at a set amount per mile per year. Whether or not the seller rail carrier gets an amount over and above the maintenance fee is not specified, but it seems plausible it could. In the example, the buyer will not be able to profit from present or future uses by other longitudinal subsurface users, but the seller potentially will still be able to. So, the ATF x CF methodology is appropriate in this instance, since there are other longitudinal users. This assumes that the comparables used have very similar ownership interests, all aspects of value attributable to the other users have been considered, and the viability of the comparable as a rail line has also been considered. Otherwise, the analysis may be inaccurate.

Corridor factors are extracted from sales of other corridors as a multiple calculated from the difference between what the corridor sold for and what the ATF value was at the time of the sale. Some commentators believe the corridor factor multiple (30) is a measure of plottage, an incremental increase in value created by combining the separate land parcels to create a corridor. Even more basic--and this may be semantics--the difference in value referred to as the corridor factor is a measure of demand for a corridor. When it is a multiple of more than one, it indicates demand still justifies the corridor.

Misapplication of the across the fence methodology with the corridor factor (ATF x CF) is an issue presented very well in a recent article by Schmick, (31) although his article does not specifically address corridor valuation under the RTP. Also, a distinction is sometimes made between ATF and ATF x CF, (32) where ATF methodology with no corridor factor is used in developing net liquidation value and the ATF methodology with corridor factor is used in the valuation of an economically viable corridor. As Seymour notes in his article, some appraisers use negative corridor factors in the appraisal problems involving abandoned corridors (33) (although the current article disputes the applicability of such, as discussed in the next paragraph). Schmick points out the ATF methodology inclusive of the corridor factor is misapplied by some appraisers in valuing corridors where the ATF values are the assumed minimum value, ignoring all of the characteristics of the corridor that differentiate it from the adjacent lands. A corridor factor of greater than 1 is then applied as a multiple to arrive at the final value. Schmick is one of the few voices sounding the warning of overvaluation of corridors in this way. (34)

If there is no demand for a corridor, then logically a corridor factor is not needed in the calculation. Some appraisers have used factors less than one. For example, such a factor has been used to adjust for a railroad having less than fee simple value; although what is being considered by a corridor factor of less than one, in this example, likely could or should have been adjusted for in the ATF land adjustment grids.

Nonetheless, the derivation of corridor factors from other recreational trail corridor sales is problematic, if not inappropriate, to use under any circumstance. Although it may seem reasonable to take other RTP sales transactions to formulate corridor factors, it is not. When the transfer prices are reimbursed with federal money, typically at a participation level of 80% in the RTP, the buyer's concept of value is skewed by the buyer only paying twenty cents per dollar, and even this amount often consists of other available funds or donations.

The buyer's motivation is from a community-benefit perspective, where all or most of the cost will be reimbursed by the government through the RTP. Therefore, the seller's motivation shifts from a liquidation (to escape maintenance costs, insurance liabilities, etc.) (35) to an opportunity to recoup money on intangibles through railbanking, with a buyback guarantee. The transfer still serves the purpose of liquidation from the seller's perspective, relieving it of any liability while the line has no economic use and preserving its right to reclaim the line if a future profitable use arises. Buyers in these transactions are giving no consideration to economic use, and sellers have already determined these rail segments have no economic use by initiating abandonment proceedings. So, when transaction prices for RTP transfers are negotiated with both parties knowing the money is coming from a third-party funding source, neither side is negotiating from an economic-based position. Consequently, no value correlation--represented as the corridor factor--exists between the price and ATF value. Therefore, comparative analysis under the economic concept of value is not possible with RTP transactions.

The net liquidation valuation process includes determining the ATF value(s) but does not multiply by a corridor factor, deducts for holding and selling costs, and discounts the value due to whatever holding period is determined for the sellout. This valuation concept is a sellout analysis similar to a subdivision sellout analysis. Oftentimes, the railroad has long before stripped the rail lines of rail and associated improvements for the salvage value, and all rail use has been discontinued, so the disposition of rail assets are not an issue. If there are rail assets still in place, there are STB regulations for that and those assets should be detailed in the subject's Purchase and Interim Trail Use/Railbanking Agreement or preliminary documents.

For additional information on net liquidation value, the 2007 article by Rahn (36) provides good information and devotes a section to RTP transfers. In that article's overview, Rahn says if there is no demand for continued corridor use, the subject should be viewed as being divided into smaller parcels for the best noncorridor use(s). This is relative to concluding market value.

An article by Miltenberger (37) offers a good discussion on appraising a corridor for abandonment as well as appraising a corridor post-abandonment Miltenberger notes the Interstate Commerce Commission (38) guidelines indicate net liquidation value should include portions of the right of way owned in fee only and that the lesser rights in the land were not to be valued the same. This would be consistent with sound appraisal theory where partial interests should be considered relative to what they contribute to the whole.

Scope of Work

Because the RTP is a federal-assistance program it must comply with the provisions of the Uniform Relocation Assistance and Real Property Acquisition Policies Act and its related regulations in 49 CFR Part 24. (39) In 49 CFR Part 24.103(a), "Appraisal Requirements," it states the requirements are intended to be consistent with the Uniform Standards of Professional Appraisal Practice (USPAP) and an agency may have requirements that supplement this, including Uniform Appraisal Standards for Federal Land Acquisitions (the Yellow Book), to the extent appropriate. It is relatively clear that the parts pertaining to eminent domain do not apply as the RTP transactions must be voluntary. Also, a before-and-after analysis based on a partial acquisition is not appropriate since the assignment is to appraise a defined segment, which is a whole acquisition for the purpose of the assignment. While it cannot be stated here whether a reviewing agency for a particular assignment would consider the Yellow Book provisions as requirements or as guides, it can be said there is insightful information there for the appraiser to consider.

The initial hurdle for the appraiser is identifying what is to be appraised from the perspective of what rights will be transferred. Is the corridor encumbered by other use or license agreements, easements, or restrictions? Additionally, the appraiser has to clearly understand what the interest is that is being transferred by way of the Purchase and Interim Trail Use/Rail-Banking Agreement. The agreements from the selling entity (railroad) can be very restrictive, often limiting use and excluding all but surface rights. Additionally, the buyer may not fully understand what the appraiser's scope is. In the defining-the-problem stage of the assignment, the appraiser needs to determine exactly what the buyer is getting in the transaction, and if necessary, educate the buyer relative to the scope.

During the scope development stage of an assignment, it is advisable to find out who the reviewing agency will be; it is not likely to be the organization that has engaged the appraiser. It is recommended the appraiser have a detailed and definitive scope of work document, prepared in agreement with the reviewing agency. Be sure the client is in agreement with the stated scope and assignment purpose before beginning the assignment. It certainly will not do the appraiser or the client any good to have a reviewing agency reject the appraisal because of an improper scope or because of regulatory compliance issues. For example, the Yellow Book definition of market value includes "giving due consideration to all available economic uses of the property at the time of the appraisal." (40) While economic use is implied in any definition of market value (value is an economic concept), this guideline specifically states economic use is primary to the analysis. Lastly, do not allow price to direct the value analysis; as noted under the definition of price in USPAP, "the price paid for a property may or may not have any relation to the value that might be ascribed to that property by others." (41)

Conclusion

The premise of this article is the net liquidation value methodology results in market value when there is no current economic demand for the corridor. This is based on both proper appraisal analysis as well as regulatory guidance for federal-assistance programs. If a detailed economic analysis of the subject based on market fundamentals does not conclude a present corridor use and/or current demand for continued economic corridor use, then highest and best use(s) other than a corridor use should to be concluded. If the proposed use is a noneconomic use (such as recreational rails-to-trails) or any other use not premised on connecting endpoints for economic uses, then the net liquidation value methodology is the appropriate appraisal methodology to use. This is essentially what Rahn said in his article about approaches to value (42) but conflicts with using the ATF x CF methodology with negative corridor factors, in use by some appraisers, as noted by Seymour.

The preservation of the rail corridors is arguably a public good and converting the rail corridors to recreational trails provides both social and economic benefits to the communities where they are located. However, the appraiser's role is to form a fundamentally sound opinion of market value of the old corridor 'as is' consistent with a proper scope of work and not to predict a price based on other RTP transactions, which themselves are not market-based transactions. While RTP transactions are voluntary transfers, they do not provide reliable market indicators due to funding sources and considerations that are not market-driven. So, it is likely that the price of every RTP sale includes consideration for something other than real estate, an intangible component.

This article includes quotes about great truths, not only to get the reader's attention but to also make sure these truths are remembered. Every appraisal problem is an occasion to consider the fundamentals of valuation, especially special use properties such as rail corridors that may or may not still be corridors.

Web Connections

Internet resources suggested by the Y. T. and Louise Lee Lum Library

Bureau of Transportation Statistics-Analysis of Economic Impacts of the Northern Central Rail Trail http://ntl.bts.gov/DOCS/430.html

Federal Highway Administration-Recreational "Frails Program http://wwwJhwa.dot.gov/environment/recreational_trails/

National Park Service Rivers, Trails and Conservation Assistance Program-The Impacts of Rail-Trails http://www. brucefreemanrailtrail.org/pdf/1_Exec_summ_contents.pdf

National Trails Training Partnership-Studies on Economic Impacts of Trails http://www.americantrails.org/resources/economics/index.html

Newton Trails-Research Summary, Economic Benefits http://www.newtontrails.org/uploads/5/3/1/5/5315816/economic_impact.pdf

Pennsylvania Land Trust Association, Conservation Tools-Economic Benefits of Trails http://conservationtools.org/guides/show/97-Economic-Benefits-of-Trails

Project Report for Property Value/Desirability Effects of Bike Paths Adjacent to Residential Areas http://128.175.63.72/projects/DOCUMENTS/bikepathfinal.pdf

Rails-to-Trails Conservancy http://www.railstotrails.org/index.html

Surface Transportation Board http://www.stb.dot.gov/stb/index.html

University of Cincinnati-New Research Finds that Homeowners and City Planners Should "Hit the Trail" When Considering Property Values http://www.uc.edu/news/NB.aspxPid=l4300

US Department of Agriculture Forest Service-The Economic Benefits of Recreational Trails http://www.srsfs.usda.gov/factsheet/pdf/rectrails.pdf

Wisconsin Department of Natural Resources-Measuring the Economic Impact and Value of Parks, Trails and Open Space in Jefferson County http://urpl.wisc.edu/academics/workshop/jeJferson%20county/teaml/JCEconfinal.pdf

(1.) Leonard C. Smith, "The Bundle of Property Rights," The Appraisal Journal (October 1956): 489.

(2.) The ICC was replaced by the Surface Transportation Board in 1996.

(3.) Rails-to-Trails Conservancy, The Story of Railbanking and Rail-Trails by the Numbers (report prepared for the Railroads Subcommittee of the US House of Representatives, Washington, DC, July 1996), available at http://www.michigantrails.org/sites/default/files/story-of- rail-banking.pdf. Congress decided that preservation of rail corridors was for the national interest, and Congress authorized railbanking in the National Trails System Act Amendments of 1983; 49 C.F.R. [section]1152.28 and [section]1152.29 detail the public use procedures. Federal Highway Administration Guidance Transportation Enhancement Activities, 23 U.S.C. and TEA-21 document the federal share of the cost (a maximum of 80% can be reimbursed). The Recreational Trails Program, 23 U.S.C. 206, provided new guidance on this issue in 2005. RTP funds come from the Federal Highway Trust Fund and are distributed to the states through a legislative formula. The actual ins and outs of what qualifies as matching funds, credits for donations, etc., is beyond the scope of this article.

(4.) The Surface Transportation Board has established procedures for the abandonment of rail corridors. For a summary of these procedures, see http://www.railstotrails.org/ourWork/trailBuilding/toolbox/informationSummaries/abandoned_vs_active.html.

(5.) The term buyer is used in this article to denote a trail sponsor group in a scenario where a monetary consideration is involved. The buyers are usually local public agencies; 49 C.F.R. [section]1152.29(a) says, "any state, political subdivision, or qualified private organization...interested in acquiring or using a right-of-way of a rail line proposed to be abandoned for interim trail use and rail banking." The sellers are railroads (aka rail carriers or rail service providers). The interest being bought and sold is whatever interest the railroad has in the rail corridor; sometimes it is fee simple, sometimes less than fee simple, usually a combination of the two. Even though it is valued as a sale, it is an interim trail use agreement, the length of which is perpetuity or until a rail carrier wants to reactivate the line; the likelihood of the later seems relatively remote. Railroads can also donate or lease old corridors, but this may still involve an appraisal to determine a base value.

(6.) An example of an agreement and other resources are available through the Rails-to-Trails Conservancy's Trail- Building Toolbox, at http://www.railstotrails.org/ourWork/trailBuilding/toolbox/index.html.

(7.) 77 Fed. Reg. 85 (49 C.F.R. [section]1152).

(8.) Preseault v. Interstate Commerce Commission et al., 494 U.S. 1 (1990) No. 88-1076, available at http://laws.findlaw.eom/us/494/l.html.

(9.) Tucker Act, 28 U.S.C. [section]1491(a)(l) (1982 ed.).

(10.) Kurt C. Kielisch, "Rails-to-Trails Property Rights," Right of Way (November/December 2012): 34-37, discusses valuation of adjoining property along a recreational trail for the taking by the RTP This article, however, does not address valuation methodology from the perspective of the adjacent landowners.

(11.) Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010), s. v. "corridor."

(12.) Charles F. Seymour, "The Continuing Evolution of Corridor Appraising (Back to the Basics)," Right of Way (May/June 2002): 12-20.

(13.) Ibid., 20.

(14.) Comment following definition of value, Appraisal Standards Board, Uniform Standards of Professional Appraisal Practice, 2014-2015 ed. (Washington, DC: The Appraisal Foundation, 2014), U-4.

(15.) John P Dolman and Charles F. Seymour, "Valuation of Transportation/Communication Corridors," The Appraisal Journal (October 1978): 509-522.

(16.) Dictionary of Real Estate Appraisal, 5th ed., s. v. "highest and best use."

(17.) Certificate of Interim Trail Use and Notice of Interim Trail Use issued by the Surface Transportation Board.

(18.) Uniform Appraisal Standards for Federal Land Acquisitions, Section B-3, 35, quoting The Appraisal of Real Estate, 11th ed. (1996).

(19.) Ibid., Section A-14, 18.

(20.) The Interagency Land Acquisition Conference is an organization of representatives of federal agencies engaged in the acquisition of real estate for public uses; it is responsible for the development of the Uniform Appraisal Standards for Federal Land Acquisitions. When the subject under consideration is valuation, the agencies are generally represented by their chief appraisers.

(21.) Interagency Land Acquisition Conference, "Is a Non-Economic Highest and Best Use a Proper Basis for the Estimate of Market Value?" (position paper, adopted April 14,1995), footnote 1; available at http://www.timbertax.org/getstarted/appraisal/papers/pdf/IALAC.pdf.

(22.) See also Woodward S. Hanson, "Public Interest Value and Noneconomic Highest & Best Use: The Appraisal Institute's Position," Valuation Insights and Perspectives (Spring 1996): 27-29, 48.

(23.) Seymour, "The Continuing Evolution of Corridor Appraising."

(24.) Dictionary of Real Estate Appraisal, 5th ed., s. v. "corridor factor."

(25.) John Schmick, "Appraising Railroad Corridors: Misconceptions about Across-the-Fence Methodology," Right of Way (March/April 2013): 31-35.

(26.) Arthur G. Rahn, "Across the Fence Methodology for Valuation of Corridors: What Is It and How Is It Used?" The Appraisal Journal (July 2001): 270-276.

(27.) John T. Schmick and Robert J. Strachota, "Railroad Right of Way: Appraising Public Utility Easements (Part 1)," Right of Way (Jan/Feb 2006): 22-28.

(28.) Dictionary of Real Estate Appraisal, 5th ed., s. v. "across the fence value."

(29.) Arthur G. Rahn, "Appraisal: May the Best Approach Win," Right of Way (July/August 2007): 20-21.

(30.) Wayne L. Hunsperger, Amy McGuire, and Ron Throupe, "Transit Corridor Valuation: Issues and Methods," The Appraisal Journal (Summer 2012): 235-247.

(31.) Schmick, "Appraising Railroad Corridors."

(32.) Seymour, "Continuing Evolution of Corridor Appraising."

(33.) Ibid.

(34.) Schmick, "Appraising Railroad Corridors."

(35.) Arthur G. Rahn, "Net Liquidation Valuation of Transportation Corridors," The Appraisal Journal (Winter 2007): 56- 61.

(36.) Ibid., 56-57.

(37.) Fredrick D. Miltenberger, "Rail Right-Of-Way Valuation," The Appraisal Journal (January 1992): 79-85.

(38.) As previously noted, the STB replaced the ICC in 1996.

(39.) Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, as amended (42 U.S.C. 4601 et seq.) and 49 CFR Part 24, Uniform Relocation Assistance and Real Property Acquisition for Federal and Federally Assisted Programs.

(40.) Uniform Appraisal Standards for Federal Land Acquisitions, Section A-9, 12.

(41.) Comment following the definition of price. Appraisal Standards Board, Uniform Standards of Professional Appraisal Practice, 2014-2015 ed. (Washington, DC: The Appraisal Foundation, 2014), U-4.

(42.) Rahn, "Appraisal: May the Best Approach Win."

Jeffrey K. Jones, MAI, is the chief appraiser for the Alabama Department of Transportation (ALDOT), Montgomery, AL. He began his career as a county tax appraiser in the 1980s, and went on to do eminent domain appraising/review/court testimony; commercial appraisal review for regional/national banks (both as an employee and later as a contractor); and spent several years as an independent commercial appraiser affiliated with Real Estate Appraisers, LLC (now Valbridge Property Advisors-Montgomery, AL) before returning to ALDOT. He has a BA with an emphasis in real estate from the University of Southern Mississippi. Contact: jonesjk@dot.state.al.us
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Date:Jun 22, 2014
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