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72 rental units in a condo complex

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Vernon Martin

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Jun 8, 2005
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Certified General Appraiser
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California
A 360 unit condo complex in an overbuilt condo market has 72 remaining units operated as rentals by the developer. A Canadian investor is buying these 72 units.

I'm trying to figure out a sales comparison approach. The rental apartment properties in the neighborhood are older and don't have condo maps, so would understate the value. I can't just add the individual retail values of each unit, either, without applying some type of bulk sale discount, for which I have no data. I could try a DCF analysis assuming sales over some absorption period, but condo sales are so slow now, this forecast would be rather speculative.

With the weak condo market, I would think that there are other transactions like this going on, but where do I find such data?

Any suggestions? Thanks, everyone.

VM
 

PropertyEconomics

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Jun 19, 2007
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Certified General Appraiser
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New Mexico
Vernon,

Perhaps the market approach isnt applicable due to being unreliable for this property type as a "bulk" sale?
I would agree there may in fact be some bulk sales, but other than calling major condo developers and asking if any such beasts exist, im not sure how you would get the data.

PE
 

George Hatch

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Jan 15, 2002
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I've appraised a couple of smaller condo projects w/maps that were under rental occupancy, and I've seen several apartment properties sell with conversion maps. Believe it or not, they didn't appear to sell for more than the properties without the maps.

Of course, none of these were new construction - they were mostly conversions or condo projects that had been operated as rental apartments all along. Also, the SD region is further along in this cycle than much of LA or the O.C.

I say that if you look around enuogh you'll probably run into some failed conversion projects w/ completed maps; regardless of their location you can compare them to similar unmapped apartment properties to see if there is/isn't a premium in the market.
 

Lost Cause

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Sep 17, 2004
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Certified General Appraiser
State
New York
I've worked a great deal over the years with apartment condo projects, both new development and conversions of rental apartments or other types of buildings. All that time and I've never heard the terms "condo maps" or "conversion maps". Perhaps it's a California thing? It sounds like part of a condo approvals process, but could someone clarify that for me?

I've seen bulk sales of unsold portions of stalled condo developments, but don't know a good source for such info. I don't know if there's enough activity in such a market for reliable conclusions. I would contact a large brokerage, such as Cushman & Wakefield, to see if they have and will provide any info.
 

Dennis J. Black ASA IFAS

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Mar 5, 2002
Professional Status
Certified General Appraiser
State
Florida
Are you appraising a 72 unit portfolio or 72 individual units. I think that is what determines if a bulk discount applies. I don't see this really being that different than owning 72 detached houses.
 

JMFla

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Sep 18, 2007
Professional Status
Certified General Appraiser
State
Florida
In these 'fractured' condo scenarios, we have used actual apartment project sales in the sales comparison approach, and apply an adjustment for property rights. This way you can compare a similar income stream based on comparable rent, expense and lease-up times.
 

Dennis J. Black ASA IFAS

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Mar 5, 2002
Professional Status
Certified General Appraiser
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Florida
How do you determine the "property rights adjustment" If I own 72 individual units and need to raise cash I can sell a unit. If I own an apartment building I need to get a loan.
 

AnonApprsr

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Jan 21, 2008
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Massachusetts
Property Rights Adjustment? 10,000. Easy as pie!
 

CBBoston

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Jan 27, 2008
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State
Massachusetts
I don't remember how deeds are recorded in CA. Here in MA, which is way behind the power curve in using info technology in RE, I would first identify large condo projects. Then I would seach the deeds by the addresses of those projects and look for sales that were recorded on a single date. If I saw a large number on one date or an very high $ value of a single sale, I would try to find out if that's a single buyer sale. Once you know the unit mix, you could compare the averages for the bulk sale to sale prices of single units. Of course that assumes there are any recent sales of single units. Lots of work but that's why we get paid the big bucks.

You could look at it as a rental income property which is probably the most likely use until, and if, the market ever recovers. Condo fees just become another expense. However this still doesn't account for the ability to sell off indivdual units.

What's the purpose of the appraisal?
 

Carnivore

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Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
North Carolina
Vernon,

There are very serious issues to consider if you have 72 rentals owned by one entity in a 360 unit condo residential complex. There is likely other rentals within the complex also which runs up the total considerably.

the issue then becomes one of marketability. Fannie Mae has a pretty strict rule on multiple unit ownership. The project might not be approved for the GSE financing if those number are exceeded. Essentially you are cutting out a larger market of buyers or have increased loan rates.

I Just think its something to really look at in this assignment.
 
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