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  #1  
Old 10-31-2011, 12:35 PM
musicgold1 musicgold1 is offline
 
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Default Valuing a child care centre

Hi,

I am not an appraiser but need to use appraisals in my line of work. I am trying to understand how a child care building is valued. Recently I have come across the appraisal of a child care centre. I am not sure how the appraiser went about valuing the property but I am assuming she used an income approach.

Now my question is how accurate it is to use the income approach in valuing such special buildings. By special buildings I mean that there is not a liquid market for these buildings. If a child care centre goes out of business, how likely is it to find another person/company to open a child care centre there? In effect, the value of the real estate is tied to the business being run. I am not sure if I am thinking straight.


Thanks.
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Old 10-31-2011, 12:50 PM
Walter Kirk Walter Kirk is offline
 
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There are plenty of factors to be considered in appraising special use properties. The first thing that an appraiser should do is a highest and Best Use Analysis. This analysis will tell the appraiser what the property (not just the building) should be used for to yield the greatest return on investment.

A part of the appraisers analysis would be to consider what other uses the property, as improved, could be put to. Perhaps it could be used as a private school, medical clinic, retaol store, etc. Assuming that the Highest and Best Use is as a care center the appraiser must consider the value of any special licenses, permits or zoning necessary to operate.
  #3  
Old 10-31-2011, 01:33 PM
Michael S Michael S is online now
 
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Some child care centers have long term leases to national companies. These are purchased like bonds with the value wrapped up in the lease, not the "sticks and bricks" of the property.

Any sort of property with a limited number of potential buyers can face some issues if it goes vacant. Whether it's a child care center or a manufacturing building. The specialized nature means only a limited supply of buyers who are willing to pay for those features. Another buyer may only be willing to pay a fraction of the price as they'll need to do extensive remodeling.
  #4  
Old 10-31-2011, 01:44 PM
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Howard Klahr Howard Klahr is offline
 
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You need to first determine if you are looking for the real estate value or the value of the going concern (includes business value). In regard to comparison of comparable properties, the licensed capacity is one issue as well as the amenities and services provided.

In terms of valuing the property via an income approach, you would not get into the fees charged by the child care center unless you intend to include business value as part of the result.

Alternative uses can also be a challenge in that many of the fixtures are situated well below standard height.

What is the intended use of the report? Just like many other types of specialize real estate, there is often a business component in the value (.i.e. hotels, gas stations, etc). The degree to which this is considered varies based on the type of property.
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Old 11-01-2011, 10:10 AM
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To answer the question of what value is there in a child care center when there is no business being operated from the property, one might answer with a rhetorical "what is the value of a church with no congregation?"

Obviously, there is value. When analyzing the market value of a child care property, it can be challenging to separate the real property from the personal property and the business value, if any. However, it is not impossible. If the highest and best use of the property is continued utilization of the use for which it is designed, in this case, a child care center, it is particularly necessary to interview those who participated in a comparable transaction.

For instance, I recently spoke with a buyer of a child care property I utilized as a comparable sale for a similar property I was valuing. She reported that she had to replace all furniture immediately after purchasing the property and that the business was only operating at 20% of licensed capacity when she purchased it. She reported that she gave no value to the furniture or business operation. After she assumed ownership, replaced furniture, and corrected areas of deferred maintenance, she reported she was operating at 80% of licensed capacity in less than a year after she purchased the property.

I spoke with another purchaser who reported a the recorded sale price included dollar amount that had been assigned the furniture and that there was no consideration for any business value in the transaction. I made an adjustment to that sale price for FF&E.

I spoke with a purchaser who reported that the recorded sale price reflected the value of the real property only and that there was a separate contract for furniture and any business value which was paid outside of the recorded sale price. No adjustment for FF&E or business value necessary for that property.

All of these transactions were associated with the valuation of a property designed specifically for use as a child care center which was operated by a local owner who specialized in the business and who owned a number of similar, smaller properties in the area. The nature of her properties appealed to an owner-user, not to an investor. Thus, for this property, the sales comparison approach was given the most consideration.

I also recently provided an appraisal of a child care property which was owned by an investor which specialized in ownership of larger, higher quality child care properties for lease to national child care operators. The operator of the child care center leased the property on a long-term basis and the lease was structured as absolute net. In other words, the owner's responsibility with this property was almnost entirely limited to depositing the periodic rent check he received from a credit-rated tenant. The tenant was responsible for outfitting the property and operating the business. For this property, most consideration was given the income approach. As the valuation of a net leased property occupied by a national credit-rated tenant, it was not my most difficult assignment that month.

So, to answer the question "can a child care (or any special use) property be valued without inclusion of business value" the answer is "most definitely." How that is done will depend on the characteristics of the property and its market.
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Old 11-01-2011, 11:22 AM
Mountain Man Mountain Man is offline
 
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In a good metro area it shouldn't be difficult to find sales and leases of child care centers. Typical building leases in our area are often for 10 or more years with a couple 5 year options to renew. Sales are usually one operator to another, or even for alternative uses such as a start up church... or the ever increasing uses as an elder adult daycare. If you are in a rural market or declining city, data may be harder to find and alternative uses could be as a Government facility.
  #7  
Old 11-01-2011, 01:46 PM
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AnonApprsr AnonApprsr is offline
 
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Two issues to focus on, imo.

1. Highest and Best Use - Would the property be more valuable as some other type of commercial venture, including the monies involved to convert any necessary improvements?

2. Are you valuing the worth of the Real Estate, or the worth of the Business and associated included items?
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Old 11-04-2011, 04:39 PM
musicgold1 musicgold1 is offline
 
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Thanks folks.




Let us say that the vendor owns the land and the building and runs a child care centre in the building. The buyer is going to buy the whole package. As far as I understand there are three components to the value.

1. Value of land + building : the highest and best use analysis will get this value.
2. The value of furniture and equipment, modifications to the building : I am not sure how to value this.
3. The value of the child care business I guess the income approach should get this value.

Is that correct?

Thanks.
  #9  
Old 11-04-2011, 05:06 PM
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Books are written and courses are given on the subject of separating the value components of a going concern. It's a bit complicated to discuss on a internet forum.
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  #10  
Old 11-04-2011, 05:21 PM
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Calvin the Airedale Calvin the Airedale is offline
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Also, a lot depends on whether you keep them in cages or tethered to stakes in the rear yard.
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