Valuations not reliable, says team

By Macharia Kamau

Independent and Government valuers could not be relied on to ascertain the true value of the Grand Regency Hotel.

Instead, the Government should have invited bids from interested buyers and sell the hotel to the highest bidder.

"Considering the analysis of the available valuation reports, it is evident that the valuation reports cannot be relied on to give the indication of the hotel’s market price at the time of its sale," said the report.

"The only way that this could have been achieved was at open market sale, where all the potential buyers had an opportunity to submit bids," it adds.

This was not done.

Through competitive bidding, the hotel could have fetched much more than the Sh2.9 billion that the Libyan Arab African Investments Company paid for it.

Basics overlooked

According to the report, different valuers did not consider factors that could have seen the price of the hotel significantly rise.

"Inflation and property appreciation over time does not, in our view, seem to have been adequately addressed by any of the valuers… To state that a building that cost Sh1.38 billion in 1997 would cost Sh1.21 billion to build today is not believable," said the report.

Reports by different valuers, including Government’s chief valuer, contradict each other on pricing as well as what the hotel was sold for.

Lloyd Masika and Value Zone, the two firms that the CBK engaged in the valuation early last year, put the price at Sh1.7 billion and Sh1.6 billion respectively.

The instructions given were that the valuations were to be used for accounting purposes. According to the valuers, the client’s instructions, which include the purpose of the valuations, were always important.

A third valuer, Ark Consultants, was commissioned to do a review of the two valuations and do another.

According to Ark, the hotel was valued at Sh2.2 billion.

The purpose of Ark Consultants was, however, unclear.

"Instructions to this third valuer were availed to the Commission and the circumstances under which the valuer was asked to undertake the review are also unclear," said the report.

Crystal Valuers, which was appointed by the Cockar Commission Secretariat to undertake an independent valuation, put the hotel’s value at Sh2.034 billion.

In addition to the land and building, the valuation by the three consultants factored such things as building and site works, plant and machinery and furniture.

Ministry of Lands chief valuer gave the value of land and building alone at Sh2 billion.

In their defence as to why they put the value of the hotel even lower than it was sold, the property consultants told the Commission that the Government was to take the blame for failure to give a proper brief on the purposes of the exercise.

The contractual papers availed to the commission by the valuers do not mention the issue of sale.

"What is unusual about the letters (from the Government to valuers instructing them to carry out the valuations) is that they did not mention that the valuations were for sale.

In fact, they stated that the valuations were for accounting purposes," says the report. According to the valuers, the process would have been different had they been informed of the intent to sell, as they would have factored such intangible factors as goodwill, not usually considered in valuations for accounting purposes.

Addressing the commission, consultants from Lloyd Masika and Value Zone said they had not valued the hotel as a ‘going concern’ and therefore not factored goodwill.

One of them argued that it would have been unfair to use the valuation by the two companies for a sale as it was intended for accounting purposes.

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