Sensitivity Analysis For GLA

[Joe Flacco]

Unless you are saying that EI could be $200k+ regardless if building a 800 SF house or a 2,600 SF house. That would make some sense.

 

[George Hatch]

If an SFR buyer is actually buying the payment then what are the implications of that in the CA where that literally isn't an alternative? If buyers commonly consider the REL to be indefinite (they have no plans to EVER redevelop the site) then how does that manifest in the calculation of accrued depreciation?

 

[Joe Flacco]

The only way I can make sense of depreciated 800-1000 SF houses contributing a lot more than cost new is if cost new is actually more because the dollar amount of EI a developer expects is the same regardless of what they build. It doesn't matter if they build a 800 SF house or 2,600 SF house which is maximally productive. In that case it is not that the improvement contributes more than replacement cost new, it is that replacement cost new is actually a lot more than what we think it is based on a percentage of project costs. That actually makes some sense.

 

[George Hatch]

4247 New York was built out with a new SFR of 2330sf (6273sf lot). It sold in 02/2018 for $1,130,000
3451 Brookhill St has a 1965yb SFR of 2111sf on a heavily terraced lot - front and rear - of 8935sf lot. It sold in for 09/2017for $1,003,000 upgraded in the past, but in generally C3 condition overall.

$127,000 spread to cover all the differences between these two properties.

 

[Joe Flacco]

What is your point with that?

 

[George Hatch]

There's not much room for accrued depreciation in the 50+yr old home.

$127,000 (difference in sale price over 8 mo)
- 18,000 (adjustment for 220sf of GLA between the two @ $80/sf)
-------------
$109,000 difference that might nominally be attributable to the accrued depreciation of the older home; re: design, condition, etc
$2,056/yr x 53 years of age difference between the two structures
$1.02/sf per year for the 2110sf structure, after consideration of the updates that have been added during the interim.

That doesn't look like much accrued depreciation to me. And that's assuming zero value change during the interim.

 

[Joe Flacco]

One is 9,000 SF lot and the other is 6300 SF lot though.

 

[George Hatch]

Lot utility between the two is similar due to the extent of terracing on the larger site; but even if it wasn't, what differential would you apply to the larger and more heavily terraced site to equalize it to the smaller and less terraced parcel?

 

[Joe Flacco]

I'll look at this other property later.

 

[Terrel L. Shields]

Sales comparison approach to value = $700k

Value of Site = $400k
Replacement Cost New = $200k
Physical Depreciation = ($100k)
Economic Depreciation = $200k

So you can have negative depreciation of $200k to explain the gap between sales comparison approach to value and cost approach to value?

Then you figured it wrong. You have undervalued the land or the RCN, one or the other.