By: Mark Lansing
We live in an economy where provision of products and services is ever changing, including the hard assets by which such products and services are provided. For complex industrial and manufacturing property that remain subject to the cost approach (or even hospitality property – although, normally, this property is valued by either the income or market approaches), whether using the reproduction cost new or replacement cost new approach (or both), making sure the right replacement property is chosen is essential. That replacement facility must reflect market realities, and be the most economical replacement of the subject property’s utility and purpose. For example, if valuing a coal fired plant by the cost approach, the replacement facility must reflect that coal plants are no longer being constructed. Instead, they are being replaced by combined cycle gas turbines (or even wind and solar). The same applies for nuclear plants. Yet, and notwithstanding market realities, some assessors continue to use like kind replacement (i.e., coal for coal). This approach is non-market based and over- values the property.
To achieve equitable assessment and taxation of commercial and industrial properties, valuation approaches need to reflect market realities.