MAAO UMASS 2010 ANALYSIS AND VALUATION OF PRIME AND EXCESS COMMERCIAL LAND

MAAO UMASS 2010 ANALYSIS AND VALUATION OF PRIME AND EXCESS COMMERCIAL LAND

OVERVIEW Land classification can be determined by use or zoning Type and size of improvements will determine land value Zoning & size of improvements can determine prime site and excess Value can be determined by direct and indirect methods

LAND CLASSIFICATION Improved Parcels are qualified by use Vacant Parcels are qualified by zoning

EXAMPLE Restaurant = Commercial Factory = Industrial Fire Station = Commercial Mixed Use =????

VACANT LAND Zoning will typically determine prime site allocation If parcel is pre-existing grandfathered site, entire parcel becomes prime Any portion beyond zoning requirement becomes excess Granting of permit could alter allocation

IMPROVED LAND Size of improvements will typically determine prime site area Prime sites allocated by Land-to- Building ratio (L/B Ratio) Remainder classified as excess

EXAMPLE 200,000 SF Parcel contains a 35,000 SF GLA office building L/B Ratio = 4:1 Prime Site = 35,000 x 4 = 140,000 SF Excess = 200,000 140,000 = 60,000 SF

EXAMPLE 100,000 SF Parcel will contain a 20,000 SF warehouse L/B Ratio = 4:1 Prime Site = 20,000 x 4 = 80,000 SF Excess = 100,000 80,000 = 20,000

EXAMPLE 43,560 SF Parcel contains a 2000 SF GLA Fast Food Restaurant Zoning = 40,000 SF; LB Ratio only 8,000 Prime Site = 40,000 SF Excess = 43,560 40,000 = 3,560 SF

DETERMINATION OF LAND to BUILDING RATIO Examination of recent sales and new construction can give insight on market requirements for land area necessary to support a given improvement size

ANALYSIS OF RECENTLY BUILT C&I BUILDINGS # Street Land Size Building Size Ratio 12 Freedom Way 40000 10000 4.0 34 Independence Avenue 50000 12000 4.2 56 Constitution Blvd 100000 30000 3.3 78 Lexington Lane 120000 25000 4.8 90 Concord Court 125000 32500 3.8 Average 4.0

EXCEPTIONS TO WATCH Grandfathered or Urban Lots Underdeveloped lots: Car Washes, Bank ATM Kiosks, Drive-thru restaurants Land Intensive Uses: Sand/Gravel, Car Dealerships, Agricultural, Mining, Parking Facilities, Outdoor Storage Yards

VALUATION Vacant Land Sales Sale Residuals Income Residuals

VACANT LAND SALES General, vacant Commercial & Industrial land is allocated into a Prime Site and Excess Land (if any). Excess Frontage rarely is considered, as rear developable acreage can be accessed by subdivision on a case-by-case basis.

VACANT LAND SALES Prime Site determined by size of proposed construction & L/B Ratio If no proposed development: Zoning controls allocation

SOURCES OF INFORMATION Building Permit Planning Board Media Site Inspection

EXAMPLE 200,000 SF Parcel contains a 35,000 SF GLA office building L/B Ratio = 4:1 Prime Site = 35,000 x 4 = 140,000 SF Excess = 200,000 140,000 = 60,000 SF

SALE RESIDUALS Work the same as residential land residual analysis Sale Price Market Value of Improvement = Indicated Land Value Residuals can be arrays by neighborhood, prime lot size, excess acres only, etc.

EXAMPLE Sale Price Imp Value Residual Size $200,000 $150,000 $50,000 30,000 SF $375,000 $290,000 $85,000 40,000 SF $899,000 $800,000 $99,000 43,560 SF $660,000 $550,000 $110,000 87,120 SF $500,000 $350,000 $150,000 217800 SF

ADVANTAGES Confidence in projected Market Value is high, as Sale Price reflects actual market transaction for parcel in question. Unbiased estimate of value

DISADVANTAGES Limited selection of sales Transaction price may include personal property, existing lease, or goodwill Assessor still must project market value of improvements

What Can We Conclude? # Sale Price Building Value Land Resd Lot Size Assessed Value Ratio 1 $350,000 $249,000 $101,000 1.00 100000 0.99 2 $330,000 $219,000 $111,000 1.50 105000 0.95 3 $775,000 $656,000 $119,000 2.00 110000 0.92 4 $550,000 $384,000 $166,000 5.00 145000 0.87 5 $999,000 $756,000 $243,000 10.00 190000 0.78

INCOME RESIDUALS Generated income value serves as proxy for market value Income Approach Value Market Value of Improvements = Land Value And residuals can be arrays by neighborhood, prime lot size, excess acres only, etc.

EXAMPLE Income Value Imp Value Residual Size $240,000 $150,000 $90,000 43,560 SF $475,000 $375,000 $100,000 40,000 SF $599,000 $500,000 $99,000 43,560 SF $659,000 $555,000 $104,000 45,000 SF $500,000 $380,000 $120,000 44,000 SF

ADVANTAGES Income Approach allows almost every improved parcel to be used in the analysis Large sample allows for land breakdown analyses like prime site curve, excess acreage pricing, and neighborhood assignation

DISADVANTAGES Large number of assumptions needed to project income value Heavily dependent on quality and depth of income and expense data Assessor still must project market value of improvements

What Can We Conclude? # Income Value Building Value Land Resd Lot Size Assessed Value Ratio 1 $250,000 $175,000 $75,000 0.50 $50,500 0.67 2 $330,000 $250,000 $80,000 0.67 $66,700 0.83 3 $400,000 $315,000 $85,000 0.80 $82,500 0.97 4 $275,000 $180,000 $95,000 0.92 $93,300 0.98 5 $500,000 $400,000 $100,000 1.00 $100,000 1.00