Valuing Architecture as Art
Valuing Architecture as Art
The Recent Sale of the Manola Apartments by Architect Rudolph Schindler defies the use of Standard Appraisal Techniques
by John C. Carlson
The terraced property at 1807 Edgecliffe Drive in L.A.’s Silver Lake neighborhood isn’t just any apartment complex. Designed by legendary architect Rudolf Schindler with broad windows and double-height ceilings, the 16-unit Manola Court apartments is a unique artists’ community set within hillside gardens, its living spaces connected by walkways. Built in 1926 for Romanian-born artist Herman Sachs, best known in Southern California as the creator of the mural at the entry of Bullock’s Wilshire, the compound not only included Sachs’ personal residence and studio but was an artistic commune of sorts, evolving over time and occupying three adjacent lots until it resembled a European hill town. Yet, it is also a prime example of modernist architecture.
Time, however, had not been kind to the property when it went on the market this year for $2.5 million. The buildings needed substantial improvements, and the aging interiors cried out for restoration. But given the scale of the property and increasing popularity of the area, Manola Court was still likely to find a buyer quickly despite its disrepair and faded glory. But how do you put a price on a property like this—a piece of real estate that could be considered an eyesore to one person and a treasure to another? One buyer’s teardown is another’s restoration-worthy classic. “Trophy properties” like these are not only prone to creating controversy, but they completely defy the use of Standard Appraisal Techniques.
Most appraisers are lost when it comes to the valuation of architect-designed properties. In trying to apply standard valuation methods that will be acceptable to their lender clients, appraisers often miss the mark. Using comparables within “1-mile of the property” that “sold in the last year”–typical lender valuation measures–is wholly inadequate for evaluating this kind of real estate. The experienced buyer of a trophy architectural property is drawn to the “art” aspect of it along with the real estate value. But what the “art” is worth is especially difficult to measure.
Because I specialize in the valuation of architect-designed properties, I was retained by the Trust that owned the Manola Court Apartments to complete an appraisal on their behalf. Generally, I begin any valuation with researching the “Provenance” of the property, whether it is residential, or an apartment building like this. If one looks up the word “provenance.” the definition primarily pertains to art work, antiques or collectibles. Not real estate. However, I would argue that an architect-designed property is a “work of art”— which defies normal valuation methodologies. [In addition, it is possible to distinguish two meanings for provenance: first, as a concept, it denotes the source of derivation of an object, in this case an architectural property, and second, more concretely, it is used to refer to a”record” of such a derivation.]
Analyzing the provenance or pedigree of a property involves researching the name of the architect and determining the architect’s prominence, along with researching the prior ownership of the property and determining if any of the prior owners were notable with regard to the history of the building and/or the area in which the property is located. The degree of provenance has an impact upon its value as well. To measure this, I have defined three different “levels” of provenance—e.g., whether the original owner was important to the area or whether a name architect was involved even though the house may not be historically significant, whether it is historically and architecturally significant and warrants a premium based on those factors.
Even after all of the above is evaluated, measuring the value of an architect-designed property is still tricky. The most important consideration in any valuation of this type of property is checking comparable sales in order to measure whether buyers are paying a premium, and if so, what is that premium. In general, appraisers have difficulty in measuring this premium because either they have not bothered to give the provenance any thought or because even if they have, properties of this sort are very scarce to find since few sell in a given year. In addition, current lender requirements often do not allow the time necessary for residential appraisers to complete a proper analysis like this.
The same procedures are used in measuring any premium from world-class architecture as are used in measuring the “contributory value” of any amenity. Take a pool, for instance. The appraiser who wants to measure the contributory value of a pool first finds several sales of similar properties with pools and then locates several sales without pools. The difference in the value between the two indicates the contributory value of the pool in that particular neighborhood. But if recent sales in the immediate or nearby area where an architectural property is located are not available, most appraisers just give up and report that there was no way to measure a premium. However, I would argue that there are ways to measure the Provenance of a property, they just take time. In addition, appraisers must not limit themselves to a tight geographical area to approximate an answer and so a comparable sale does not have to be so close to the architect designed property being appraised.
You can also find properties that were located at a distance from the property that’s being appraised and measure whether they sold at a premium within their market area. For instance, if an architecturally significant property in one area sold for $2 million and a more “typical” property nearby sold for $1.5 million, the architectural property sold for a 25% premium over the non-architectural property. When you can assemble several sales like this and obtain several premium indicators, this can be applied to the property you are appraising. This kind of analysis requires a larger number of comparables to develop a range in premiums – it is much better than just giving up.
So, how did I do in the valuation of Schindler’s hillside apartment complex? Despite all my experience and the thoughtful methodologies I have developed, I appraised the Manola Apartments for less than 2 million on an “as-is” basis. (I cannot divulge my actual appraised value). Appraising the building on an “as-is” basis means that I took into consideration the costs for the for the substantial work the buildings required, which is correct appraisal methodology. Yet the property was more in demand than anyone expected and sold 6-months after my appraisal for $2.9 million. There were 14 bids on the property many of which were over asking price which proves the architectural value of the property. I am delighted that it sold for a higher price because I now have a prime example of the premium for which a non-standard architect-designed trophy property would sell to add to my database of comparable sales. After all, why shouldn’t architecture sell like art?