N.M. Admin. Code § 19.2.22.17

Current through Register Vol. 35, No. 23, December 10, 2024

Section 19.2.22.17 - IMPROVEMENT VALUE; IMPROVEMENT VALUE CREDIT

A. IV, when calculated. Improvement value (IV) must be calculated when a planning and development lease terminates, upon a disposition or partial disposition, or at lessor's discretion including but not limited to at the time of a sublease or assignment. IV is generally determined through appraisal by comparing the subsequent value of the leased premises to the base value of the leased premises with an adjustment for natural appreciation pursuant to the following and as described in Paragraph (1) of Subsection C of 19.2.22.17 NMAC below:

(1) Base appraisal. Prior to the effective date of the planning and development lease, the applicant, at the applicant's expense, shall cause an appraisal of the trust land to be performed by a qualified appraiser conforming to the uniform standards of professional appraisal practice (USPAP) to establish the base value (BV). The commissioner may require specific appraisal instructions and require that the appraiser be approved in advance. The state land office staff appraiser shall review the base appraisal pursuant to the USPAP Standard 3, and make a recommendation to the commissioner that the base appraisal be accepted, rejected, or accepted with adjustments. The commissioner may approve a BV consistent with the staff appraiser's recommendation or make deviations therefrom if appropriate based on the commissioner's exercise of reasonable judgment, documented in writing. The commissioner reserves the right to reject any base appraisal.

(2) Subsequent appraisal. A subsequent appraisal is required in order to update the current value of the leased premises for purposes of identifying IV, if any. At least 60 but not more than 90 days prior to the expiration of a lease, disposition or partial disposition, or at lessor's discretion including but not limited to at the time of a sublease or assignment, lessee at lessee's expense shall cause an appraisal of the trust land to be performed by a qualified appraiser and conforming to USPAP to establish the subsequent value of the leased premises (SV). The commissioner may require specific appraisal instructions, including but not limited to those described in Subparagraph (a) of Paragraph (3) below, and require that the appraiser be approved in advance. The state land office staff appraiser shall review the subsequent appraisal pursuant to USPAP Standard 3, and make a recommendation to the commissioner that the subsequent appraisal be accepted, rejected, or accepted with adjustments. The commissioner may set the SV consistent with the staff appraiser's recommendation or make deviations therefrom if appropriate based on the commissioner's exercise of reasonable judgment, documented in writing. The commissioner reserves the right to reject any subsequent appraisal.

(3) Adjustment for NA. Only the beneficiaries of the land trust are entitled to increased value resulting from NA. Accordingly, every planning and development lease must provide for one of the following methodologies designed to adjust for NA when determining IV:

(a) Appraisal instructions method. In addition to any other specific appraisal instructions required by the commissioner, each subsequent appraisal must be performed pursuant to the following specific instructions requiring two iterations of the appraisal:

(i) first iteration - the appraiser shall first appraise the disposition parcel for its present value considering only those improvements, if any, that were in place at the time that the base appraisal was performed; if the value that results from this first iteration exceeds BV as established by the base appraisal, this first iteration value becomes the BV of the disposition parcel for purposes of calculating IV; and

(ii) second iteration - the appraiser shall next appraise the disposition parcel at its full present value considering all present improvements; the value that results from this second iteration becomes the SV of the disposition parcel for purposes of calculating IV.

(b) Predetermined adjustment factor or other alternative method. Any methodology determined by the commissioner to protect the trust's interest in the value created by NA as opposed to the value created by lessee's improvements may be used, including but not limited to a pre-negotiated periodic adjustment factor included in the lease to be applied to the BV to account for the anticipated NA at the time of disposition.

B. IVC accrual; when payable. IVC accrues only upon completion of base infrastructure at least up to the boundary of the leased premises, or in the case of a partial disposition, sublease or partial assignment, at least to the present boundary of the disposition parcel, sublease or partial assignment. Alternatively, pursuant to the terms of a lease, IVC may accrue when the lessee has contractually obligated itself to construct such base infrastructure and where the contractual obligation is adequately secured by a transferable bond or letter of credit or other acceptable security. The commissioner may require that base infrastructure be extended or guaranteed through a given parcel prior to allowing a disposition, partial disposition, sublease or assignment. Upon disposition to any person or entity other than the holder of the IVC, the purchaser or new lessee shall satisfy payment for the IVC pursuant to the following:

(1) in the case of a sale or exchange, the commissioner shall convey payment of the IVC, if any, to the holder thereof from the sale or exchange proceeds; or

(2) in the case of a lease, the commissioner shall convey payment of the IVC, if any, to the holder thereof from the deposit described in Paragraph (3) of Subsection A of 19.2.22.11 NMAC above less any rent, costs, or damages owed to the commissioner; however, no payment of the IVC will be made if a bill of sale or waiver of payment signed by the holder of the IVC is filed with the commissioner.

C. IVC, how calculated. Subject to the conditions and restrictions set forth in this provision, a lessee may be entitled to IVC as determined by the following procedures and calculations and pursuant to the terms of the lease:

(1) Step 1: The base value is subtracted from the subsequent value, as adjusted for NA through one of the methodologies described in Paragraph (3) of Subsection A of 19.2.22.17 NMAC above, to determine the improvement value [SV - BV = IV].

(2) Step 2: The improvement value is multiplied by the lessee percentage to determine improvement value credit [IV x LP = IVC].

EXAMPLE WHERE: SV (adjusted for NA) = 200, BV = 100, and LP = 60%

200 - 100 = 100: IV = 100

100 x .60 = 60: IVC = 60

(3) A lessee will not be liable for any negative IVC.

(4) Any bonus offered at a lease auction, or any value bid at a sale or exchange auction in excess of SV as set by Paragraph (2) of Subsection A of 19.2.22.17 NMAC above, will be payable solely to the commissioner and will not be considered for purposes of IVC.

D. Depreciation of IVC. A planning and development lease may provide that IVC may be lost or depreciated over a stated time if, after termination of the planning and development lease, there is no successor in interest other than the commissioner.

E. Commissioner not liable for IVC. Except for the transfer of funds for IVC deposited by a lessee or to be paid from the proceeds of a sale, the commissioner is not liable for the payment of any IVC. The commissioner may require a release or indemnity from the party receiving payment of the IVC.

F. IVC holder must be identifiable. The holder of the IVC must be identified in the records of the state land office. Unless otherwise provided in a lease, leasehold mortgage or collateral assignment of IVC or infrastructure approved by the commissioner and filed with the state land office, the commissioner shall treat the lessee, not the collateral assignee or mortgagee, as the holder of the IVC and the party entitled to payment

N.M. Admin. Code § 19.2.22.17

19.2.22.17 NMAC - Rp, 19.2.22.17 NMAC, 11/30/12