Circle Line

From RECGA Member, Stephen D. Roach, MAI, SRA

My firm, Jones, Roach & Caringella, Inc., has specialized in solving unique or unusual valuation problems since its inception in 1986. Examples of such issues include appraisal or consulting assignments involving several intact Spanish land grant parcels in California (20,000 to 40,000 acres),  a wild and scenic river with associated watershed in Alabama, the second largest shopping center in Alaska, a variety of contaminated properties, the Las Vegas Metropolitan Police Headquarters facility, a 100,000+ acre military facility as if fully privately developed, and many others. However, one of the most interesting assignments I have undertaken was an appraisal of the entire fleet of Circle Line boats in New York Harbor.

Since the 1950’s, Circle Line had been the only concessioner to the United States National Park Service (NPS) providing passenger ferry service to the Statue of Liberty and Ellis Island. It did so using its fleet of vessels, Miss Ellis Island, Miss New Jersey, Miss New York, Miss Freedom, Miss Gateway, Miss Circle Line, and Miss Liberty, along with other support vessels and facilities.  The main vessels had been constructed between 1954 and 1993 specifically to provide this service to the NPS and the public.

After a series of contracts that began in 1953 and ended in 2004, the NPS selected a different operator to provide passenger ferry services to the public. The final contract contained language that required Circle Line to sell to its successor “all property of the Concessioner used or held for use in connection with such operations.” The contract further obligated the NPS to require the successor to purchase these assets, and to pay Circle Line the “fair value thereof”, which was defined in the contract as “replacement cost less depreciation and obsolescence.”  A significant dispute arose between Circle Line and the successor regarding the value of the vessels as defined by the contract. Because the contract under which the vessels were to be valued was an NPS real estate contract, using language common to real estate valuations, I was retained by Circle Line’s counsel as part of its valuation team.

The experts retained by the successor concessioner primarily valued the vessels using a sales comparison analysis, using sales of vessels that were generally foreign-built (not permitted under the Circle Line concession contracts) and to be re-purposed for uses other than those for which they were originally built. The value conclusions for the fleet by these experts ranged from about $10-$11 million. As the lead appraiser and valuation theory expert on the Circle Line team, my interpretation of the contract was that the valuation had to consider the terms and requirements of the contract, including that the vessels had to be built in the United States with the approval and oversight of the NPS. Further, I concluded that the valuation had to reflect that the vessels were being acquired for continued use under a new NPS concession contract to provide the same services formerly provided by Circle Line.

Working with a strong legal team and a very sophisticated valuation team, Circle Line’s position was that the value of the vessels was nearly three times the valuation put forth by the successor concessioner. Because of the strength of the arguments presented and the level of support for the conclusions, the matter settled very favorably to Circle Line well prior to the scheduled arbitration.