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Old 04-24-2012, 04:08 PM
GregoryK GregoryK is offline
 
Join Date: Jan 2011
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Default Land Cap rates

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.
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Old 04-24-2012, 04:16 PM
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My experience parallels yours.
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Old 04-24-2012, 04:48 PM
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Pittsburgh Pete Pittsburgh Pete is offline
 
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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!
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Old 04-24-2012, 05:07 PM
GregoryK GregoryK is offline
 
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Default Land cap Rates

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
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Old 04-24-2012, 05:27 PM
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Numbers in rural Georgia are much lower.
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Old 04-24-2012, 06:30 PM
GregoryK GregoryK is offline
 
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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.
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Old 04-25-2012, 08:15 AM
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All agricultural land.
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Old 04-25-2012, 08:59 AM
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Terrel L. Shields Terrel L. Shields is offline
 
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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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