Appraising A "community Center" In A Small Town

[NC Commercial]

I'm having a hard time with this one.

Its a proposed "Community Center" in a very small town. The property will be owned by the local government.

The cost is substantial.

There are no alternative uses for this proposed building that substantiate a value anywhere close to what the costs are going to be.

It is definitely a "Special Purpose Property" but can you get away with doing just a Cost Approach anymore?

Any help would be greatly appreciated.

Thanks,

 

[Vernon Martin]

Is there a risk in telling it like it is? A well-documented report could help alleviate the political forces that might be unleashed on you.

Perhaps the builder has been generous with campaign contributions, and your report might shed light on misuse of city funds.

If you do a cost approach, you should deduct economic depreciation for the lack of liquidity for such a property.

 

[AMF13]

Perhaps the builder has been generous with campaign contributions, and your report might shed light on misuse of city funds.

That would be par for the course here. But doing so could be risky I think, perhaps especially in a small town.

 

[Terrel L. Shields]

It is definitely a "Special Purpose Property" but can you get away with doing just a Cost Approach anymore?

Sales can be found, but you might want to do a wide area search for towns of similar demographic and they might be buyers as well as sellers. Locally, I found a bank, a telephone office, a chain drug store, all sold to city police departments. They sold fairly well, but seemed to have a consistent discount above that explained by age alone. Thus solid evidence of functionality and externalities. Apply to cost and you are there.

 

[Michael S]

What's the purpose? Does the client want market value, value in use, or some other definition of value? Market value will certainly be much lower than construction cost due to the external and functional obsolescence if it were to be used for some other purpose.

I just finished an appraisal of an office building in a small city and my client (the owner) wanted me to include mention in the neighborhood section about a huge new community center that had just started construction (and that he donated money to help build). I think it was going to be something like $60 million and include an aquatic park, gym, multiple sports courts, indoor soccer fields, etc. If the city wanted to sell that I can't imagine anyone would ever pay more than a fraction of that $60 million construction cost.

 

[Meandering]

Depending on the recreational amenities, The YMCA, or gym might be a potential buyer, also, we have some churches that have large recreational buildings that are off site of the main church building. We had a custom built state police barracks sell and become a day care center when the State Police custom built a new barracks.

 

[AMF13]

We had a custom built state police barracks sell and become a day care center when the State Police custom built a new barracks.

OK. Talk about a police state.

 

[Michigan CG]

Not to be a conspiracy theorist or be judged as "radical" but I would include a very detailed Cost Approach as it seems government likes to spend OPM with no regard to the cost. Small towns tend to have significant vacant space that could serve the same purpose without building something new. Then again, small towns also have some people with a lot of clout (and money) that influence and dominate the remainder.

I would also include an income approach to show what the building would be worth should it be available. There are small towns here where $8/SF/year would be a blessing for some property owners with vacant space.

The SCA would be hard to do as there would be no sales of similar properties (in my area).

 

[Meandering]

OK. Talk about a police state.

yeah but we ONLY have the state police. No local, no city, no county, not layers and layers of police with nothing to do.

.

 

[DREA Dean]

I hope you got a good fee. Not only will you have to do extra research and analysis, and take time to explain it all in the report, but you will probably also have to answer questions after you are "done". It's going to be difficult, I imagine, to find sales of anything similar in age and style, even if you cast a wide net. But, as mentioned, look for sales of anything at all similar and see if you can quantify the total depreciation. In terms of income valuation, perhaps office and retail rents for newish buildings in your market will indicate a value. You may need to subtract out something more for alterations. And the result will probably be, as you suspect, lower than the cost of construction.

If the client wants you to provide a "full cost" value, call it investment value to the anticipated user.