Most apartment properties will, sooner or later, be the subject of an appraisal assignment. With all apartment appraisals, we attempt to identify the probable purchaser profile and then simulate typical purchaser behavior. Expense and cost comparables are used in addition to comparable sales and rentals. The result is a reasonable reflection of investor behavior.
We, the appraisers, do our own market surveys because, in addition to being confident the data is accurate, we receive a wealth of residual information during the interviews. In summary, we attempt to provide as much relevant detail as is necessary to adequately reflect typical market behavior, and then logically deduce such behavior as it relates to the property appraised.
Lower-priced condominiums provide the most feasible path to home ownership for entry-level purchasers. Particularly in congested suburban/urban areas, proximity to employment and entertainment makes sense for younger people.
Purchases of both entry-level and high-end condominiums often make good economic sense, particularly at recession-price levels.
We have appraised a wide variety of light industrial properties with building sizes have ranging from under 10,000 square feet to over 250,000 square feet. Uses have ranged from toy manufacturing to cross-dock truck terminals.
Valuation considerations include ease of access, maneuvering areas, ceiling heights, docking facilities, office build-out and relative location. Other considerations can be conveyor systems, refrigeration areas, HVAC, lighting, inside loading/unloading capability, sprinkler systems, and employee accommodations.
The appraisal of undeveloped land can be challenging because value is correlated with development potential and, since development potential is a function of zoning, topography, soils conditions, off-site development expenses, the extent of competition, and the level of immediate demand, simulating market behavior can involve issues which are complex. In the past, we have appraised parcels that were one-of-a-kind, typically waterfront in locations where surrounding properties had been built-out for decades, or where redevelopment of competing properties was restricted.
Office floor plate size and configuration affect income productivity which, in turn, affects value. Also, as the adage goes, you can never have too many corner offices. HVAC, elevator banks, complementary retail and restaurant accommodations, ingress and egress, security measures, appearance and common areas also affect income production in varying degrees. Parking availability and accessibility impact value for either retail or office properties. Responsive building management, bandwidth capacity, and conduit accessibility are additional concerns.
For retail tenants, relevant intervening variables include individual tenant sales volume. A successful tenant will not want to move, will be more willing to accept a higher rate increase upon lease renewal, and is unlikely to either require downsizing or experience lease default during the interim period. Alternatively, a struggling tenant will probably not want to remain in their present location, implying prospective vacant space at the time of lease expiration or perhaps sooner. Weak sales can, however, be affected by inadequate tenant location and mix. Sales potential and, subsequently, value can be enhanced with location and mix modifications. Other considerations are extent and location of direct competition. These variables are all considered in a retail appraisal assignment.
Residential subdivisions are physically challenging because, as one developer stated, “The gremlins live in the ground,” and no development is more sensitive to the dirt than a subdivision.
Sensitivities extend beyond the dirt, however. In the present economy, lot and speculative inventory pricing is competitive. Present neighbors may prefer no more neighbors; some environmentalists prefer no growth. The political obstacles in the path of preliminary plat approval can be formidable.
With any subdivision appraisal, adequate discovery of competing inventory, whether existing, under development, or proposed, is necessary to estimate market demand adequacy, providing reasonable assurance of adequate absorption at values projected. Residential demand is estimated from an analysis of labor market and population trends. Our subdivision appraisals give the reader a comprehensive residential market overview.
AUTOMOBILE DEALERSHIP FACILITIES
We have appraised automobile dealership facilities along the I-5 and I-90 corridors. Like worship facilities, no two automobile dealership facilities are alike although most have general characteristics in common. In addition, location, visibility and exposure, the parts department, service department, showroom executive and sales office areas efficacy, as well as site size and configuration, are weighed when estimating value.
BED & BREAKFAST FACILITIES
What’s the difference between a bed and breakfast facility (B&B) and a house? Quite a few. To paraphrase Abraham Lincoln, “Calling a house a ‘bed and breakfast facility’ doesn’t make it one.”
Income characteristics, specifically quantity, quality, and durability, are salient considerations while physical characteristics are another. The same standards that determine whether a property is a true B&B must also apply to comparable properties used in the report. While the buyer of a B&B is often unsophisticated with respect to value (versus price) and functional utility, we’re not.
Convenience store value is a function of location, while location desirability can be correlated with gasoline and store sales volume. Consequently, when appraising a convenience store, we weigh historic gasoline volume, and also use (as part of one valuation technique) total sales together with cost of goods sold. This technique conforms with typical investor behavior. Related property appraisals have included truck stops and carwashes.
Appraising hospitality facilities and restaurants is unique because of upside potential linked to management proficiency. We have seen seemingly marginal properties become very profitable with management changes.
In one instance, over a two-year period the average room rate doubled and the occupancy increased 20%, with no significant market changes. The question is to what extent business behavior affects real estate value because, in varying degrees, it always does.
Management proficiency is, therefore, a germane concern. Other considerations, in addition to “all the comforts of home,” include destination location proximity, guest profile, room lay-out, sizes, and mix; banquet and conference facilities; accessibility; visibility and exposure.
While we are competent to appraise most hotels and restaurants, for larger, five-star facilities or casinos we recommend contacting either John Gordon, MAI, GVA Kidder Mathews (425-283-5783); or Scott Biethan, MAI, CB Richard Ellis (206-292-6198); specialists in larger hospitality facilities appraisals.
MISCELLANEOUS PROPERTY TYPES
Gradual growth of planning department anti-worship facilities bias over the past 50 years has generated a supply/demand imbalance. As worship facilities expand, they occasionally reach the point where existing facilities become inadequate; however, in many cases additional expansion is not allowed, and the lengthy (years) approval process for new worship facilities development in an alternative location is prohibitive. Subsequently, when a larger worship facility becomes available, the ultimate purchase price can be a result of prospective purchasers making offers exceeding the initial asking price.
Self-storage facilities also need ease of access and, preferably, a location near larger employment or population bases, although profitable exceptions exist. Visibility and exposure are also important in terms of maximizing occupancy levels. We have appraised self-storage facilities in diverse locations, both urban and rural, ranging from under 100 units to nearly 1,000 units. Generally speaking, self-storage development can enjoy above-average profitability. Where demand is favorable, income levels can justify values significantly exceeding development costs. In addition to visibility, exposure, and location, adequate/evident security and conscientious management are necessary to maximize income productivity.