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HomeNewsArchivesSOME CLUES TO SUGAR BAY MARKET MYSTERIES

SOME CLUES TO SUGAR BAY MARKET MYSTERIES

Source reporter Jim Day’s Dec. 26 story on the property tax assessment squabble between the owners of the Wyndham Sugar Bay Beach Club and the Virgin Islands government (see "Sugar Bay sues over property tax assessment") suggests the need for some financial detective work.
The owners say they purchased the hurricane-damaged property for $4.2 million but that is now being assessed at $41 million for tax purposes. Their lawyers also say, according to Day, "the discrepancy between the selling price and the assessed value is so large that the V.I. government has refused to record a deed for the sale of the property."
Without any first-hand information on this mysterious situation, or on the property, and without knowing any of the people involved, but with a decade of experience in dealing with multimillion-dollar property tax appeals as chair of the tax board in Arlington, Va., let me make a couple of observations.
First, the non-filing of the deed by the V.I. government might be a collusive act by an island government desperate for tax dollars, as the law suit may imply, but there probably are other considerations. For starters, the government agencies that file deeds (a fairly routine, judgment-free task) usually are not connected to the government agencies that assess the value of real estate (a task filled with tough judgment calls).
Perhaps the people in charge of both agencies are close friends, or friendly relatives, and the deed-filing guy blocked the filing of this deed because the assessor asked him to do so. This would call for an impressive amount of inter-agency cooperation.
More likely, there is something unusual in the deed that has caused its non-filing. I have never encountered a blocked filing of a deed in my years in the business, and I regard this allegation by the owners as Sugar Bay Mystery No. 1.
Mystery No. 2 is this: Why the remarkable difference between what the owner thinks the place is worth, and the value set by the government? I have seen plenty of 2:1 arguments and some 3:1 disputes, but the ratio of 10:1, as in this case, is highly unusual and, again, suggests buried bits of information.
Tax assessments are supposed to reflect the "real market value" of the property in question, the value that would be established in a deal between a willing seller and a willing buyer in which neither side was under any special pressure to buy or sell. The sales price alone does not necessarily reflect the true value of the property. As a general rule, sales of real estate fall into two categories:
– "Arm's length" transactions: those that reflect the workings of a well-run real estate market, something approximating the markets in stocks and bonds that operate on Wall Street – plenty of buyers and plenty of sellers at all times – and thus are good, if not perfect, indications of the value of a particular property.
– "Non-arm's-length" transactions: those entered into when at least one of the parties has a special need that impacts on the amount of money involved in the deal. (The web site showing assessments in a jurisdiction neighboring mine, Virginia's Fairfax County, routinely carries notations as to whether the most recent sale of a property falls into one or the other of these two categories.)
There are circumstances when a property will sell for much less than its market value: maybe the owner desperately needs money for a medical emergency or to avoid bankruptcy. Sometimes the buyer will pay an unreasonable amount of money because the property in question meets a particular non-market need of that individual. (In Arlington, for instance, the county government, I think appropriately, assessed a particular apartment building at something like $8 million when it had just been sold for something like twice that figure. The $8 million was what a typical apartment complex of this kind would bring in Arlington generally. The buyer paid much more because it had a characteristic which was uniquely valuable to the buyer. The buyer was the People’s Republic of China, and the apartment building looked down on the Pentagon.)
So, there may well have been some special circumstances that caused a damaged, onetime $45 million property to sell for $4.2 million, as in the Sugar Bay case. Some theoretical possibilities:
– Perhaps the seller and the buyer were related to each other, or perhaps the seller desperately needed the cash.
– Perhaps the $4.2 million was for the owner’s equity in a property which carried a heavy mortgage, with the equity plus mortgage equaling the true value of the property.
– Perhaps the $4.2 million was the agreed-upon figure for that particular property within the framework of a much larger deal involving several properties, perhaps in several different jurisdictions. (We have seen plenty of cases like this in Arlington, where the buyer and seller agree on a huge transaction, then later arbitrarily calculate the deed-recorded value of the individual properties to limit the tax liability of one or both of the parties.)
– Perhaps there was a pending insurance settlement for hurricane damage that could be transferred from seller to buyer, meaning that the property was worth, let us say, $4.2 million in cash and many millions more in insurance money. This scenario would suggest that the $4.2 million was precisely the amount of money changing hands but at the same time only a fraction of the true value of the property. The deed in question might or might not have anything in writing reflecting this particular scenario.
Perhaps the V.I. government’s reply to the suit will move us toward the solving of these mysteries. Or perhaps it will come out at the trial, if there is one. And perhaps there will be an out-of-court settlement and we will never get an answer.

Editor's note: David S. North, a semi-retired former federal employee, is an occasional contributor to the Source on matters involving government affairs and economics.
We welcome and encourage readers to keep the dialogue going by responding to Source commentary. Letters should be e-mailed with name and place of residence to source@viaccess.net.

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Source reporter Jim Day’s Dec. 26 story on the property tax assessment squabble between the owners of the Wyndham Sugar Bay Beach Club and the Virgin Islands government (see "Sugar Bay sues over property tax assessment") suggests the need for some financial detective work.
The owners say they purchased the hurricane-damaged property for $4.2 million but that is now being assessed at $41 million for tax purposes. Their lawyers also say, according to Day, "the discrepancy between the selling price and the assessed value is so large that the V.I. government has refused to record a deed for the sale of the property."
Without any first-hand information on this mysterious situation, or on the property, and without knowing any of the people involved, but with a decade of experience in dealing with multimillion-dollar property tax appeals as chair of the tax board in Arlington, Va., let me make a couple of observations.
First, the non-filing of the deed by the V.I. government might be a collusive act by an island government desperate for tax dollars, as the law suit may imply, but there probably are other considerations. For starters, the government agencies that file deeds (a fairly routine, judgment-free task) usually are not connected to the government agencies that assess the value of real estate (a task filled with tough judgment calls).
Perhaps the people in charge of both agencies are close friends, or friendly relatives, and the deed-filing guy blocked the filing of this deed because the assessor asked him to do so. This would call for an impressive amount of inter-agency cooperation.
More likely, there is something unusual in the deed that has caused its non-filing. I have never encountered a blocked filing of a deed in my years in the business, and I regard this allegation by the owners as Sugar Bay Mystery No. 1.
Mystery No. 2 is this: Why the remarkable difference between what the owner thinks the place is worth, and the value set by the government? I have seen plenty of 2:1 arguments and some 3:1 disputes, but the ratio of 10:1, as in this case, is highly unusual and, again, suggests buried bits of information.
Tax assessments are supposed to reflect the "real market value" of the property in question, the value that would be established in a deal between a willing seller and a willing buyer in which neither side was under any special pressure to buy or sell. The sales price alone does not necessarily reflect the true value of the property. As a general rule, sales of real estate fall into two categories:
- "Arm's length" transactions: those that reflect the workings of a well-run real estate market, something approximating the markets in stocks and bonds that operate on Wall Street – plenty of buyers and plenty of sellers at all times – and thus are good, if not perfect, indications of the value of a particular property.
- "Non-arm's-length" transactions: those entered into when at least one of the parties has a special need that impacts on the amount of money involved in the deal. (The web site showing assessments in a jurisdiction neighboring mine, Virginia's Fairfax County, routinely carries notations as to whether the most recent sale of a property falls into one or the other of these two categories.)
There are circumstances when a property will sell for much less than its market value: maybe the owner desperately needs money for a medical emergency or to avoid bankruptcy. Sometimes the buyer will pay an unreasonable amount of money because the property in question meets a particular non-market need of that individual. (In Arlington, for instance, the county government, I think appropriately, assessed a particular apartment building at something like $8 million when it had just been sold for something like twice that figure. The $8 million was what a typical apartment complex of this kind would bring in Arlington generally. The buyer paid much more because it had a characteristic which was uniquely valuable to the buyer. The buyer was the People’s Republic of China, and the apartment building looked down on the Pentagon.)
So, there may well have been some special circumstances that caused a damaged, onetime $45 million property to sell for $4.2 million, as in the Sugar Bay case. Some theoretical possibilities:
- Perhaps the seller and the buyer were related to each other, or perhaps the seller desperately needed the cash.
- Perhaps the $4.2 million was for the owner’s equity in a property which carried a heavy mortgage, with the equity plus mortgage equaling the true value of the property.
- Perhaps the $4.2 million was the agreed-upon figure for that particular property within the framework of a much larger deal involving several properties, perhaps in several different jurisdictions. (We have seen plenty of cases like this in Arlington, where the buyer and seller agree on a huge transaction, then later arbitrarily calculate the deed-recorded value of the individual properties to limit the tax liability of one or both of the parties.)
- Perhaps there was a pending insurance settlement for hurricane damage that could be transferred from seller to buyer, meaning that the property was worth, let us say, $4.2 million in cash and many millions more in insurance money. This scenario would suggest that the $4.2 million was precisely the amount of money changing hands but at the same time only a fraction of the true value of the property. The deed in question might or might not have anything in writing reflecting this particular scenario.
Perhaps the V.I. government’s reply to the suit will move us toward the solving of these mysteries. Or perhaps it will come out at the trial, if there is one. And perhaps there will be an out-of-court settlement and we will never get an answer.

Editor's note: David S. North, a semi-retired former federal employee, is an occasional contributor to the Source on matters involving government affairs and economics.
We welcome and encourage readers to keep the dialogue going by responding to Source commentary. Letters should be e-mailed with name and place of residence to source@viaccess.net.