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Summary of Tetra/Lake House Appraisals

There were two appraisals conducted of the Lake House property. One was conducted in 2010
and another in 2015, both by the same company. The major findings, after a comparison of the
appraisals, are as follows:

I. It appears that the 2010 appraisal was managed by RA staff and the 2015 appraisal
was managed by the RA land use attorney.
 The 2010 appraisal was commissioned by the Reston Association CEO, Milton
Matthews while the second appraisal seems to have been commissioned by RA’s land
use attorney. The land use attorney notes in the January 22, 2015 Board meeting that
he had already commissioned the appraisal (before the project was presented to the full
Board, and before the Board decided to move forward with the project). It is not clear
if/when this work or this expenditure was authorized by the Board or staff. Reston Now
reported on April 10, 2015 that the Board signed an appraisal agreement with The
Robert Paul Jones Company in December 2014, but we find no record of this in Board
minutes.
 The 2015 appraisal shows the land use attorney as the point of contact (POC) for
Reston Association. The appraiser noted that the property owner reported “that the
property has not been listed for sale, but that he has had discussions with Mr. McBride
and the Reston Association.” There is no public record of these conversations, or about
the appraisal - no record of when it was commissioned, who was designated to lead it, or
any special instructions for the appraiser.
 Members feel RA needs to ensure business deals are more clearly and closely managed
by RA staff and overseen by Board members. In this case, it appears the appraisal was
managed solely by RA’s land use attorney. If there was direction or authorization by
staff, committees, or the Board, it is not on record. There is a need for better record
keeping so that members understand who is driving this work and these decisions.
Questions:
1. Who authorized the appraisal?
2. Who appointed the land use attorney as the POC?
3. Was the appraisal managed solely by the land use attorney?
4. Who was overseeing the work of the attorney?

II. In 2015 the appraiser is instructed by “the client” to appraise the property
“assuming that restaurant uses are permitted and that any deferred maintenance
has been corrected.” This resulted in the property being appraised at the highest
possible value ($2.65M).
 In the 2010 appraisal, Milton Matthews, CEO of RA, told the appraiser to estimate the
value of the property under three scenarios: (i) office; (ii) expanded restaurant; and (iii)
land value alone, if ever subdivided. This resulted in a range of values for the property
($1.1M for an office to $2.7M if it were expanded and used as a restaurant)..
 In the 2015 appraisal “the client” (presumably RA or its land use attorney) instructed the
appraiser to value the “property assuming that restaurant uses are permitted” and ”any
and all deferred maintenance currently existing at the subject as of the effective date of
appraisal has been corrected. . .” There are several issues with these instructions:
o The December 4, 2014 engagement letter signed by RA’s CEO does not instruct
the appraiser to assume deferred maintenance is completed. The document
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states that any changes to the assignment “shall necessitate a new Agreement.”
It is not clear if this occurred.
o RA must have known that seeking an appraisal as a restaurant would result in
the highest estimated value given that the 2010 appraisal conducted for RA by
this same company valued the property, as a restaurant pad site, ($2.76M), and
as “as is” office use ($1.17M).
o RA marketed the facility to the community as “indoor community and recreational
use” and sought to designate the property in the Comprehensive Plan as “office
and/or community facility,” so it is unclear why RA would appraise as a
restaurant.
o The appraiser was instructed to estimate the value as a restaurant assuming
deferred maintenance was corrected which would drive up the property valuation.

 This critical decision and specific instruction resulted in a valuation of the property at the
highest possible price, and deviated from the instructions followed in 2010. It is not clear
who specifically made this decision, who gave these instructions, who knew these
instructions were given, and who knew what the impact of these instructions would be.
 The appraiser used standard appraisal methodology, conducted an analysis of use and
current demand, and provided the estimated value for the property’s highest and best
use(s), which included the estimated value for the property as an expanded restaurant
as requested by “the client” ($2.65M), and the estimated value of the property, as an
office ($1.1M - $1.4M) - which was close to the Fairfax County Assessment ($1.2M). The
property valuation assuming restaurant use was permitted was very close to what the
owner was asking ($2.7M).
 Many RA members question why RA did not offer a price closer to the “as is” fair market
value of the property ($1.1M - $1.4M) and instead offered $2.65M for a property (valued
upon increased FAR and completed deferred maintenance), especially given the
property’s FAR was not intended to be expanded by RA and the facility was marketed to
the public as community and recreational use. Some members believe such instructions
to were given so that RA could justify the (higher) price that the owner was seeking and
justify to members that the property was worth the asking price, so they would vote yes
on the referendum.
Questions:
1. Who gave the appraiser these instructions?
2. Who was aware that these instructions were given?
3. Was there any Board or staff involvement in setting the appraisal approach?
4. Was anyone other than the land use attorney and CEO aware that instructions
were given to appraise as a restaurant only?
5. Was there a change in instruction following the December 4, 2014 engagement
letter to include deferred maintenance?
6. Why would RA ask the appraiser to assume restaurant use, knowing from the
2010 appraisal that it would result in a higher price?
7. Did RA seek any land use determinations from the county about the property in
2014 or 2015?
8. What documents were provided to the appraiser?
9. Why wasn’t the fact that restaurant use would require substantial renovation and
possible demolition included in the 2015 appraisal as it was in the 2010
appraisal?

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10. Was the Board made aware of the differences in approach and results between
the 2010 and 2015 appraisal?
11. Did the Board understand the ramifications of the appraisal instructions? When
did the Board receive the appraisal?
12. Why did the board negotiate the price before they saw the appraisal?
13. Why did the Board continue with negotiations when the values were so far apart?

III. The 2015 appraisal omits land use documentation that was included in the 2010
appraisal.
 The 2010 appraisal includes 10-15 pages of correspondence and documents on
permitted uses and notes “a difference in opinion [between the county and owner] as to
the development potential of the property” and does not indicate there was a final
resolution. The documents include a March 27, 2003 letter from the Fairfax County
Zoning Department stating that floor area ratio (FAR) is limited on the current property
“to that which was established with the initial construction of the sales center.” Adding a
restaurant unrelated to the existing building is possible and FAR of that eating
establishment is not specifically limited. Therefore, it seems that the FAR on the existing
building is limited, but it is possible to add another building of undetermined FAR if a site
plan were approved with consideration of various land-use factors including the
Chesapeake Bay Preservation Act.
 The 2015 appraisal does not reference the above-mentioned documents, but instead
notes, “It is our understanding that the subject has 6,930 FAR feet which could be
constructed out into Lake Newport as a permitted restaurant use.” It is not certain why
the appraiser would assume this to be true, when an appraisal by the same company
five years earlier indicated there was a “difference in opinion.” It is also not certain why
RA would ask that the property be appraised as a restaurant considering the uncertainty
raised in the 2010 appraisal and given RA had no intentions to expand the property into
a restaurant. However, the 2015 appraisal notes, “[a]ccording to our client instructions,
a restaurant would have the potential for extending out into the lake and that the GBA
would be 6,930 feet.”
 The appraiser provided a value estimate “assuming the Additional Building
Improvements Could be Expanded into Lake Newport” based solely on the word of the
owner that “There is no limitation on the amount of restaurant FAR he can do, but that
the office FAR cannot be expanded.” and as per the client’s instruction: “We have been
asked to assume that, according to our client instructions, a restaurant would have the
potential for extending out into the lake and that the [gross building area] GBA would be
6,930 feet.” There is no evidence the appraiser sought to verify these development-
potential statements.
 There should have been more discussion on whether it was legitimate to seek an
appraisal as a restaurant, considering the 2003 property use determinations and
development limitations, and the fact that RA did not intend for this property to become a
restaurant, nor does this align with RA’s suggested vision in the Master Plan.
Questions:
1. Why were the zoning letters included in the first appraisal (2010) and not in the
second appraisal?
2. Did RA’s attorney or RA seek any land use determinations prior to finalizing the
letter of intent or sending out the referendum?
3. Does RA plan to expand the property and if so why wasn’t this disclosed?
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4. Why did the appraiser take the word of the owner on the development potential,
given the previous appraisal (by the same company) noted a difference in
opinion on the development potential?
5. Why did the “client” instruct the appraiser to assume that a restaurant would have
the potential for 6,930 GBA?
6. Why didn’t RA’s land use attorney raise these issues?

IV. It appears the Board did not see the appraisal until after the purchase price of
$2.65M was determined and the Letter of Intent was authorized to be drafted.
 In the February 9, 2015 Special Session Board meeting a Board member states that she
is not certain of the price being offered as the Board has not seen the appraisal. This
question comes long after the Board met in Executive Session to negotiate the purchase
price of $2.65M and voted to permit the CEO to draft a Letter of Intent laying out the
terms of the purchase. This indicates that only attorney and perhaps RA staff had read
the appraisal and encouraged the purchase price.

V. Use of the 2015 appraisal to fix RA’s offer to purchase the Tetra property

 The Board voted to move forward with the referendum on January 22, 2015.
 It appears that the price was discussed (and perhaps decided?) prior to the January 22
meeting, as the CEO noted the owner was seeking a $2.7M price, and that his price was
firm, the appraiser noted that the owner was firm on price.
 The CFO reported on January 22, 2015 that he sought out a loan for $2M on the
property.
 The CEO reveals at the February 9, 2015 meeting that RA will be obtaining $650K in
proffers.
 The board voted to set the purchase price of $2.65M and contract terms in its Letter of
Intent (February 9, 2015) based on the appraisal which the Board had not read.
 Question: How could the Board move forward with the decision to purchase without
having seen the appraisal? Why didn’t the Board seek to negotiate the price down given
the lack of activity on the property, the restrictions on use, and the urgency in timeline
expressed by the owner, as conveyed by the CEO at the January 22 meeting?

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