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Land Cap rates

Discussion in 'Commercial/Industrial Appraisals' started by GregoryK, Apr 24, 2012.

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  1. GregoryK

    GregoryK Junior Member

    1
    Jan 5, 2011
    Professional Status:
    Certified General Appraiser
    State:
    Tennessee
    Alright just for my curiosity. We do alot of appraisals for ALDOT. They prefer a building resideual be included in the income approach, which makes some sense especially in partial takes. RThe question has arose whatt is the proper land cap rate to be applied to the land value.

    I recently completed a consulting assignment whereas I was asked to determine land lease rates for several branch bank facilities. My research yielded a wide range of land cap rates, but the central tendency was between 6% and 7.5% with the median rate being around 6%.

    I have been using 7.5% since in a small town, and little other evidence. The project manager says we need a 10% cap rate, which is higher than the overall rate we have been using for improved properties. I think I have convinced him that that is mathmatically incorrect. Anyway, with 10 year bond yeilds at less than 3% this may still be high. Any thoughts as to land cap rates. Just curious what others are using.
     
  2. Ken B

    Ken B Elite Member

    82
    Feb 18, 2004
    Professional Status:
    Certified General Appraiser
    State:
    Florida
    My experience parallels yours.
     
  3. Pittsburgh Pete

    Pittsburgh Pete Elite Member

    36
    May 6, 2008
    Professional Status:
    Certified General Appraiser
    State:
    Pennsylvania
    Gregory, you've jumped into the form with two feet--welcome.

    We do quite a bit of Penndot work and have to value many TCEs (temporary construction easements). We have historically just referenced published rates in Realtyrates.com. Admittedly this is a somewhat lazy approach but given the generally rural areas where the TCEs occur, there isn't any clear market data. We do have a volume of info in more urbanized areas and there a 6-7.5% land cap rate is spot on. Had a recent project where there were several land leases (banks) where the cap rate is in the range of 5-7%. but with the properties in BFE, published rates are what we lean on.

    So I guess one could say that citing data from Realtyrates is close enough for government work!
     
  4. GregoryK

    GregoryK Junior Member

    1
    Jan 5, 2011
    Professional Status:
    Certified General Appraiser
    State:
    Tennessee
    Pitsburgh Pete, I am an oldie from way back here. Use to be pretty active back in I guess 2005 or 2006. But it helps keep the motivation going by discussing things like this with my peers. I ran a shop in Southern Illinois for 27 years before moving to memphis, and then most recetly here to Alabama. I have appraised properties in ten states so I am interested in other peoples experience. In the middle of a big job so it takes the monotony away throughout the day
     
  5. John Marshall

    John Marshall Member

    0
    Jan 15, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Georgia
    Numbers in rural Georgia are much lower.
     
  6. GregoryK

    GregoryK Junior Member

    1
    Jan 5, 2011
    Professional Status:
    Certified General Appraiser
    State:
    Tennessee
    John, could you be more specific. Are you talking for commercial land or agricultural land? I was recently in central IL and a typical cap rate for ag land was around 3% of course chas rent was $5000 per acre also.
     
  7. John Marshall

    John Marshall Member

    0
    Jan 15, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Georgia
  8. Terrel L. Shields

    Terrel L. Shields Elite Member
    Gold Supporting Member

    241
    May 2, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Arkansas
    Our "Ag Land" would be pressed to exceed 3% cap rates. Some leases are up to $50 for grazing but land prices remain in the $2,500 - $3,000 plus per acre rate. Hunting leases may run higher cap rates because the lease is typically on rough land that might not bring over $1000 an acre - say 4%. And crop land, rare as it is among the flint rock, might touch 3%. Because such land is transitioning into small residential tracts, it is hard for me to buy into the proposition that there is actually a relationship between the ag rentals and the apparent non-ag value of the land.
     
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