Analysis and Valuation of Shopping Centres. Terry Tomkins M.I.M.A. President, Institute of Municipal Assessors

Transcription

1 Analysis and Valuation of Shopping Centres Terry Tomkins M.I.M.A. President, Institute of Municipal Assessors 1

2 1. General Concepts (Income Approach for Plazas) 2. Modeling Fair Market Rent Base Year Rental Analysis Base Year Rental Analysis 2

3 1. General Concepts (Income Approach for Plazas) Current Value Assessment Fee Simple as if unencumbered Fee Simple is the highest state of title Income is determined based on market analysis Value reflects all interests in the Real Property including tenant finish. The present value of future benefits 3

4 General Concepts (Income Approach for Plazas Simple formula: V = I/R or Current Value = NOI Overall Capitalization Rate NOI = The remaining income after deducting for vacancy, bad debt and non recoverable expenses 4

5 General Concepts (Income Approach for Plazas) Steps in the income approach: 1. Estimate Total Potential Gross Annual Income (market analysis of rents usually net net) 2. Deduct for Vacancy & Bad Debt (% of Gross Potential Income) = Effective Gross Income 3. Deduct non recoverable operating expenses (market Analysis) (% of Effective Gross Income) 4. Calculate Net Operating Income (NOI) before debt service or depreciation 5. Select Appropriate Capitalization Rate 6. Convert the NOI to an estimate of current value (NOI/Cap rate) 5

6 General Concepts (Income Approach for Plazas) Example: PGI 1,000,000 Potential Gross Income - Market Vacancy (7% PGI) - 70,000 Vacancy & Bad Debt Market EGI 930,000 Effective Gross Income Non Rec Exp (4% PGI) 37,200 Non-Recoverable Expenses - Market NOI 892,800 Net Operating Income R 8.0% Overall Cap rate CVA = I/R = 890,000/.08 = $11,160,000 6

7 2. Modeling Fair Market Rent (FMR) Analysis of Actual rents within a defined Area (location) Stratified by: Location Property type Type of space Size of space Age of space Quality of space 7

8 Modeling Fair Market Rent (FMR) Actual rents are adjusted to a common standard Time adjusted to the effective date of valuation Net Net (operating expenses including taxes are charged back to the tenant) Care free to the owner. Fully finished or shell (but not both) If shell is the standard, normal finish rent must be added to the modelled rent. 8

9 Modeling Fair Market Rent (FMR) Property type: Show profiles of each Shopping centres Neighbourhood strip Neighbourhood plaza no anchor With anchor Community Mall Including Lifestyle centres Power Centre Regional Mall Super Regional Mall 9

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11 Modeling Fair Market Rent (FMR) Location: Economic neighbourhood or group of Economic Nbhds Homogeneous Nbhds within Economic Nbhds 11

12 Institute of Municipal Assessors 12

13 Modeling Fair Market Rent (FMR) Type of space: Standard Retail Box or Big Box retail Specialty built ie. restaurants, drug stores, beer, LCBO, Storage, basement, office 13

14 Modeling Fair Market Rent (FMR) Size of Space: The size can often influence the rent Economies of scale. Age or effective Age of space: Actual age or effective age after renovations, additions 14

15 Kiosk Food Court Inferior location Food Court Supermarket Sears Wal-mart The 1000 Islands Mall 15

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17 Modeling Fair Market Rent (FMR) Quality of Space (Supermarket rating 1 to 5) Quality of building main structure Degree and quality of finish 17

18 Base Year Rental Model Plazas Categories: Standard Retail Offices & Storage within plazas Box & Specialty Stores LIRA Big Box Stores Valuation Platform 2008 Values = Lotus spreadsheet files (17,000 for each base year + tax years) 18

19 2008 Base Year Rental Model Plazas Standard Retail: Best Fit Rental Analysis Stratified by economic nbhd, tenant type Typically represented a curve based on size GLA sometimes a straight line - depending on the eco nbhd Special adjustments due to inferior or superior location Adjustments for level, age or effective age, quality 19

20 2008 Base Year Rental Model Plazas Shopping Centre Valuation Tenant Codes Code Tenant Comments 1 Mezz/Bsmt 10 Grocers 12 Department Stores Sears/Bay 13 Canadian Tire 14 Zellers 15 Large retail Whse Minimal interior finish Costco, Sam Club 16 Large retail Large free standing GLA over 20,000 sq.ft 17 Building centres Big Box, Home Depot, Lowes, Rona 18 Other 20

21 2008 Base Year Rental Model Plazas STORAGE: 100 Bsmt 110 Ground flr nd flr rd flr OFFICE: 200 Bsmt 210 Grd flr nd flr 230 Special infill Call centres, community services KIOSK: 300 Bsmt 310 Grnd flr nd flr 330 ATM/MTO 21

22 2008 Base Year Rental Model Plazas FOOD COURT: 400 Bsmt 410 Grnd flr nd flr rd flr ALLIED: 500 Bsmt 510 Grnd flr standard 511 Superior 512 Inferior 513 Other nd flr standard 521 Superior 522 Inferior 22

23 2008 Base Year Rental Model Plazas ALLIED Continued 523 Res apartments 530 Variety stores Beckers, MacMilk, ShortStop 531 Fast food (within or attached mall) Pizza Pizza, Tim Hortons -not free standing not in food court 532 Restaurant (within or attached mall) East side Mario s not exclusively to franchise 533 Video Stores Blockbusters, Rogers 23

24 2008 Base Year Rental Model Plazas SPECIAL TENANTS: 610 Drug Stores Shoppers Drug Mart, Rexall etc 611 Bank CIBCfinancial, Credit Union,Desjardins 612 Small discount stores Bargain Shop, Dollarama, Giant Tiger, Hart, Saan 613 Brewers/LCBO 614 Cinema 615 Automotive Automotive, car wash, garage within Mall, independent service garage 616 Gas bar Include canopy convenience store, Kiosk (upset cost) 620 Small grocery store Not an anchor-typically found in Small towns less than 20,000 sq.ft. 621 Lumber stores Castle, Home Hardware, Cashway Timbermart, typically main store <15,000 sq.ft. 24

25 2008 Base Year Rental Model Plazas SPECIAL TENANTS: Continued 622 Big Box Franchise Best buy, Bouclair, Chapters, Future Shop, Homesense, Linens N things, Mark s Work, Michels, Old Navy, Petsmart, Pier 1, Sports Check, etc Typically > 10,000 sq.ft. 630 Furniture stores Bad Boys, Furniture direct, Lazy Boy, Leather by Mann, Leon s, The Brick, etc if under 15,000 sq.ft should be done as Other 632 Other Bowling alleys, fitness centres (not In grocery stores) 25

26 2008 Base Year Rental Model Plazas ALL FREESTANDING: 701 Restaurant Serves alcohol, Kelsey, Montana s, Outback, Swiss Chalet 702 Fast Food Does not serve alcohol,dairy Queen, Harvey s, McDonalds, Wendy s 703 Coffee/Donut Coffee time, Tim Hortons, Country time, Second Cup 704 Other Other freestanding 26

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28 Fair Market Rent Institute of Municipal Assessors Rental Analysis Plazas Multiple regression Town Square Allied: 1996 Fair Market Rent Thousands Gross Leasable Area FMR Adjusted Rent 28

29 2008 Base Year Rental Model Plazas Office and storage within plazas Analyzed on usable measure Typically a flat line Market analysis within eco nbhd Adjustments for age, quality 29

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31 2008 Base Year Rental Model Plazas Box and specialty stores LIRA: Provincial LIRA model (Large Income Rental Analysis) Grocery stores, box stores, specialty Specialty = Pharmacies, banks restaurants, fast foods, coffee shops, beer and LCBO Typically on free standing pads Model output rents were bulk fine tuned by tenant code, based on local, actual, time adjusted rents. 31

32 LIRA 2008 Significant Variables for the final Model equation: Gross Leasable Area (GLA) Age of Structure (Depreciation) Tenant type (Interior Finish) Floor Level Property Code Location 32

33 LIRA 2008 Model Equation Predicted Rent = tenant group rate*tenant GLA tenant group exponent *(1-age/200) depreciation exponent *floor level adjustment *tenant code adjustment *property code adjustment *freestanding adjustment *grocery store rating adjustment *location adjustment 33

34 LIRA Example Calculation: Property Type = PC429 (Community Shopping Centre) Location = Enbhd 2107 (Kitchener) Age = 10 years old (percent good = 1-10/200 = 0.95) Tenants: Small Box (freestanding) GLA=9100 Zellers (not freestanding) GLA=54026 Zehrs rating 5 (not Freestanding) GLA=70796 Small Box Rent : = *t_gla *percent good *floor level adjustment*tenant code adjustment*property code adjustment*freestanding *grocery store rating*location adjustment = * *0.9073*1.00*1.00*1.073*1.078*0.980 = * *0.9073*1.00*1.00*1.073*1.078*0.980 =172, =19.00/ sqft 34

35 LIRA 2008 Grocery Store Rent: =28.58*t_gla *percent good *floor level adjustment*tenant code adjustment*property code adjustment*freestanding*location adjustment =28.58* *0.9073*1.00*1.05*1.073*1.00*0.98 =28.58* *0.9073*1.00*1.05*1.073*1.00*0.98 =867, =12.25/sqft 35

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39 2008 Base Year Rental Model Plazas Big Box: Benchmark Rents Building Centres (Home Depot, Rona, Lowes) Discount Stores: Walmart, Canadian Tire, Zellers, Leons Retail warehouses: Costco Rents based on modelled cost plus land value converted to rents ( show Benchmark Schedule) 39

40 Benchmark Rents

41 2008 Base Year Rental Model Plazas Capitalization Rates: Calculated from Proforma returns of valid sales. (Show Caprater ) Stratified by: Property type location 41

42 Assessment Update: LIRA will be expanded to include all commercial rents Moving hosting platform from Lotus to CSI (Cost Sales Income) An Oracle Platform Purchased from CCI Colorado Customware Inc Off the shelf and modified to fit our needs 42

43 THE END Income Approach Shopping Centres Questions? 43

44 Thank you!! I m out' a here 44