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  #1  
Old 04-30-2011, 10:10 PM
mrdalton mrdalton is offline
 
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State: California
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Default Day Care Center Appraisal

I am looking for an advice on appraisal of a Day care center that is located in Northern California ( Alameda county ). This Day care center is currently zoned residential but with a Conditional Use Permit (CUP) to run a Day care center. The CUP is transferable to the next owner. Buyer would like to use it as a owner operated Day care center. Buyer's real estate attorney thinks it should be treated as a commercial real estate purchase because it will be used for commercial purpose.
  • For appraisal, would this be treated as a SFR / commercial ?
  • What would be the best approach ( sales / income / cost ) to appraise this property ?
  • What type of experience should the appraiser have to evaluate this property ?
  • Typically how much would this kind of appraisal cost ?
Thanks - any information in this matter would be greatly appreciated.
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  #2  
Old 04-30-2011, 10:32 PM
Marion Rhodes's Avatar
Marion Rhodes Marion Rhodes is offline
 
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Location: Poconos
State: Pennsylvania
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Res or Comm, depends on highest and best use analysis, and will differ from market to market and location to location. Best approach is probably going to be sales as it is an owner user building. Experience in small commercial appraising would be best. Fees are dependent on a variety of things. For me here, this could be anywhere from $600 to $1,200 depending on size, age and location of building, Scope of Work concerning the going concern, length of time the center was in business, and general attitute of ordering entity.
  #3  
Old 05-01-2011, 12:05 AM
mrdalton mrdalton is offline
 
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Thanks Marion for the reply.
A couple of additional inputs I 'd like to mention about this property are as follows:
  • Inside of the property - all bedrooms were converted to class rooms + children's toilets + play yard as per the State requirements for a Child care center
  • Sellers have run the business for 10+ years until 6 months ago.
  • Buyer's agent could n't find comparable Day care center sales in the area that resemble this type of properties for the last 5+ years
In such a situation, what would the appraiser generally rely on ?
  #4  
Old 05-01-2011, 12:42 AM
Brian Weaver Brian Weaver is offline
 
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State: Illinois
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Quote:
Originally Posted by mrdalton View Post
I am looking for an advice on appraisal of a Day care center that is located in Northern California ( Alameda county ). This Day care center is currently zoned residential but with a Conditional Use Permit (CUP) to run a Day care center. The CUP is transferable to the next owner. Buyer would like to use it as a owner operated Day care center. Buyer's real estate attorney thinks it should be treated as a commercial real estate purchase because it will be used for commercial purpose.
  • For appraisal, would this be treated as a SFR / commercial ?
  • What would be the best approach ( sales / income / cost ) to appraise this property ?
  • What type of experience should the appraiser have to evaluate this property ?
  • Typically how much would this kind of appraisal cost ?
Thanks - any information in this matter would be greatly appreciated.
Sometimes permits for such things are treated like liquor licenses. Meaning, the physical structure has less to do with the permitted use than you think. I appraised a day care in Chicago that had all of the trappings of a day care...yet, the building was easily adaptable to any variety of urban retail or office uses. Children's toilets and playground equipment can be removed to make room for a new use. While some structures have been built to serve as day care facilities...examine the market and observe how many are indistinguishable from other uses. This may help you in your search for data.
  #5  
Old 05-01-2011, 02:36 AM
Marion Rhodes's Avatar
Marion Rhodes Marion Rhodes is offline
 
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State: Pennsylvania
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Sometimes permits for such things are treated like liquor licenses. Meaning, the physical structure has less to do with the permitted use than you think. I appraised a day care in Chicago that had all of the trappings of a day care...yet, the building was easily adaptable to any variety of urban retail or office uses. Children's toilets and playground equipment can be removed to make room for a new use. While some structures have been built to serve as day care facilities...examine the market and observe how many are indistinguishable from other uses. This may help you in your search for data.
Brian is right. We used to call this the vacant building envelope. If the driving factor in buying the property is to own a daycare center, you need to look for other buildings that would serve that purpose, so your comps maybe zoned for day care while your subject is not, but the zoning is then mitigated by your CUP permits. If your building is already set up as a day care, you need to consider that when searching for comps that inorder to serve a similar purpose they would require, whatever your locality requires, short toliets, or whatever, so an adjustment would be warranted.

The other thing to think about is other homes that are zoned for in-house businesses. We have lots of them here, and while most don't have businesses, many people like to buy them just incase the kid wants to go into tax preperation or chiropractic. Ultimately you are still looking for an owner/user building. If you are not valuing the going concern, the type of owner/user business is not a contention for adjustment, typically. The home that was converted to a hair salon or spa would be a good comp for the building you are describing.
  #6  
Old 05-01-2011, 05:20 PM
mrdalton mrdalton is offline
 
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Thanks for your replies Brian and Marion. This is helpful.

When the bank orders appraisal, does the appraiser know what the sales price of the transaction is ? Or is the appraiser working without that knowledge to come up with valuation ?
  #7  
Old 05-01-2011, 05:58 PM
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Caligirl Caligirl is offline
 
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Originally Posted by mrdalton View Post
Thanks for your replies Brian and Marion. This is helpful.

When the bank orders appraisal, does the appraiser know what the sales price of the transaction is ? Or is the appraiser working without that knowledge to come up with valuation ?
The appraiser doesn't need the contract price to appraise the property.

I'm not sure where you are in Alameda County, but in some cities transferrable use permit alone is worth $$$. Since the residence has been 'converted' for its current use, and *licensed* and permitted day care centers are charging anywhere from $12,000 to $15,000 per annum per child, I personally would weight toward the Income Approach but would also want to analyze current sales and perhaps derive an income multiplier as well.

Be sure you hire someone who has done these before.
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  #8  
Old 05-01-2011, 07:42 PM
mrdalton mrdalton is offline
 
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Thanks Caligirl for the great piece of advice
  • Do you happen to know a ball park figure as to what the permit is worth in Dublin area ?
  • Also, if this property were to appraise as commercial would it be worth the same as a retail property (renting at $1-$1.5 per sq.ft )
  #9  
Old 05-02-2011, 02:42 AM
Marion Rhodes's Avatar
Marion Rhodes Marion Rhodes is offline
 
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Quote:
and *licensed* and permitted day care centers are charging anywhere from $12,000 to $15,000 per annum per child, I personally would weight toward the Income Approach but would also want to analyze current sales and perhaps derive an income multiplier as well.
That per child is the going concern, or the going concern value of a sale of another operating day care center you could use as a comp. If you have other day care centers that sold as real estate and operating business you have the opportunity to enjoy this type of analysis. If you only have empty day care centers that sold, not in operation, then that per child computation does not work, unless your zoning indicates a max of 1 child per 6 square feet and you can compute max occupancy and estimate vacancy. I believe it is rare to find 3 or more day care center sales where they were all going concerns at the time of sale within the same trade area and within a year or two. It is a very good analysis with gas stations and gals of gas sales, or nurserys with on-site tree beds. If you're doing a re-fi for a going concern day care, the bank might want you to capitalize the income on the going concern to indicate wether the operation can afford the mortgage.

USPAP says you need a to analysis all agreements, options and transfers of the subject within 3 years, so if yours is a sale you need to at least ask for the agreement and if they don't give it to you note it in your workfile and/or report that you did at least ask.
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