APPRAISING COMMERCIAL INVESTMENT PROPERTY

Transcription

1 APPRAISING COMMERCIAL INVESTMENT PROPERTY Cydney G. Bender-Reents, MAI President Jared M. Calabrese, MAI Senior Appraiser

2 YOUR HOUSE AS SEEN BY: Yourself Your Lender

3 YOUR HOUSE AS SEEN BY: Your Buyer Your Appraiser

4 YOUR HOUSE AS SEEN BY: Your Tax Assessor

5 APPRAISERS

6 WHAT IS AN APPRAISER? Anyone who provides an opinion of value State Certification General Certified License Professionally Designated, MAI or SRA

7 WHO IS AN APPRAISER? 300 Hours Education 3,000 Hours Experience, In No Less Than 2.5 years Must have a 4- Year College Degree Covers All Real Estate With No Regard to Value or Complexity GENERAL CERTIFIED APPRAISER As of January 1, 2015

8 MAI REQUIREMENTS MAI Demonstration of Knowledge 4,500 Hours Experience Over 36 Months Comprehensive Exam 13 Courses (Examinations) CE; 100 Hours Each 5 Years

9 ENGAGING AN APPRAISER Client User The party or parties who engage an appraiser (by employment or contract in a specific assignment) The client and any other party as identified, by name or type, as user of the appraisal consulting report by the appraiser on the basis of communication with the client at the time of assignment

10 MARKET VALUE DEFINITION Means the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

11 WHEREBY: Buyer and Seller are typically motivated; Both parties are well informed or well advised, and acting in what they consider their own best interests; A reasonable time is allowed for exposure in the open market; and Payment is made in terms of cash in U.S. Dollars or in terms of financial arrangements comparable thereto; and the price represents the normal consideration for the property sold, unaffected by special or creative financing, or sales concessions granted by anyone associated with the sale.

12 Stabilized Value Stabilized Rent Levels Stabilized Occupancy As-Is Value VALUES Actual Occupancy, Rent Levels, Physical Condition Prospective Market Value Value as of a future date Projects that are proposed, under construction, or under conversion to a new use Projects not yet achieved sell-out or stabilization

13 Stabilized As-Is

14 AS-IS VALUE Stabilized Value $500,000 Less Rent Loss Vacancy 3,000 SF x $1.00/SF/Month x 3 months ($9,000) Concessions 2,000 SF x $1.00/SF/Month x 2 months ($4,000) Less Leasing Commission 3,000 SF x $1.00/SF/Month x 60 months x 5% ($9,000) Less New Roof ($30,000) Entrepreneurial 10% ($5,200) As-Is Value $442,800

15 OTHER VALUES Liquidation Value Insurable Value Value in Use

16 APPRAISAL PROCESS HIGHEST AND BEST USE As Vacant Legally Permissible Physically Possible Financially Feasible Maximally Productive As Improved Demolition Conversion Expansion Renovation Continued Use As-Is

17 CASE STUDY DMV Roseville

18 CASE STUDY

19 VALUATION ASSUMPTIONS Extraordinary Assumptions Presume as fact something otherwise uncertain Hypothetical Conditions That which is contrary to what exists

20 APPROACHES TO VALUE Cost Approach Income Approach Sales Comparison Approach

21 COST APPROACH Land Plus Improvements Depreciated Lack of Relevant Land Sales Estimating Depreciation Properties still trading below replacement values Good for Special Use Properties

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23 INCOME APPROACH Power of IRV I = Income R = Rate V = Value Income Rate Value

24 INCOME APPROACH Potential Gross Income - Vacancy Effective Gross Income - Expenses Net Operating Income

25 VACANCY Sources Published Reports Historical Rates Surveys Rate Reflects Entire Holding Period

26 EXPENSES Same Expense Structure, If Not Then Adjust Self Managed Properties Atypical Maintenance Expense

27 INCOME 5,000 SF x $1.00/SF/Month x 12 Months = $ 10% $ 6,000 $ 25.0% of EGI $ 13,500 NOI = $ 40,500

28 CAPITALIZATION RATES Based on 1 st Year s Income Derived from Market Keep Consistent

29 IRV Value Income Rate $506,250 $40,500 8%

30 SALE COMPARISON APPROACH Principal of Substitution Similar Highest and Best Use Elements of Comparison Size Location Access Exposure Traffic Count Age Condition Quality Parking

31 COMPARABLE DATA Obtaining and Evaluating Market Comparables CoStar, LoopNet, MLS Verification The Facts The Story Using REOs as Comparables Buyer & Seller Motivated Acting in Own Best Interest Open Market Cash

32 CASE STUDY

33 SUBJECT AERIAL

34 STREET VIEW

35 BUILDING EXTERIOR

36 BUILDING INTERIOR

37 CHEVRON 9881 GREENBACK LANE, FOLSOM, CA

38 CASE STUDY REO Sale

39 REO SALE

40 BANKS, BROKERS, AND THE APPRAISERS Engagement Process Early Information Exchange

41 DIFFERENCE OF OPINIONS

42 READDRESSING AN APPRAISAL

43 ENERGY REGULATIONS AND BUILDING CODES

44 TRANSIT ORIENTED DEVELOPMENT (TODS)

45 PREDICTIONS Housing peak will occur in 2020 Sacramento Sports and Entertainment Complex will be completed, impact more than just hype. Sacramento Kings win a NBA Championship in 5 years Sacramento will host NBA All-Star Weekend within 8 to 10 years Sacramento will host NCAA Basketball Sweet 16 within 5 to 6 years

46 QUESTIONS OR COMMENTS?

47 CONTACT Cydney G. Bender-Reents, MAI President Jared M. Calabrese, MAI Senior Appraiser 4400 Auburn Blvd. Sacramento, CA (916)