"As Completed" - Pad Ready Lots in Large Development

[gbailey]

Hello,
I have a couple of questions in regards to a proposed, 100+ acre commercial development I have been asked to appraise.

The property is approximately 100 acres of vacant land. The property has rolling and wooded topography currently. The site will be leveled and cleared, public utilities added, roads constructed, etc....The development costs have been provided in the amount of nearly $10,000,000 which includes the site being "Pad Ready". The developers do NOT know the number of lots or the sizes since lots will be availbale from 1 to 100 acres, depending on the purchaser.

Typically I would treat this as a subdivision and use a DCF analysis, taking into account the holding/carrying costs and a sellout/absorbtion period. However, without knowing the lot sizes or the number of lots I can't effectively do this.

What is the best way to proceed? I know that in large industrial parks the lots typically sell for the same amount no matter what size. This is mainly due to the fact that in these parks they are owned by municipalities and they just want the economic growth. Can I do something similar.

Second Questions is that there is a $0.01 sales tax incentive for development in district (CID or Community Improvement District), does this have an impact on the value or would it only apply for a site being developed with a building?

Any help would be appreciated.

Thanks

 

[Greg Graybadger]

G, your analysis of demand will guide your conclusion of highest and best use, and show you the density to expect. Typically, a developer will have invested significant effort on this topic before they order an appraisal. Ask them for whatever market studies, feasibility analysis, and concept plans they may have.
Regarding the incentive, you need to investigate this with the source of the incentive. Good luck.

 

[gbailey]

Greg,
I appreciate your response. I have done quite a bit of research and found what large National Brand Retail companies tends to require as far as land size, then found what smaller retail follows these Big Box stores for outlots (Banks, Fast Food, etc) and found an average number of outlots per a development (50-100 acres). Anyway, this is a challenging one.

I really enjoy this forum and can't wait to utilize the knowledge here more often.

Thanks again for the reply.

G

 

[Michael S]

100 acres is pretty large for a retail development. You could build a regional mall on something that size. Offhand I can't think of many retail centers that are much over 30 acres. If you were to develop something that large all at once it could take a long time for the market to absorb that much space.

Does the developer plan on doing some sort of mixed-use with office and residential as well? That seems to be all the rage these days.

 

[Vernon Martin]

When I've been asked to appraise a 100+acre proposed commercial development, I usually see a combination of proposed synergistic uses -- retail, office, light industrial, and even multifamily. If the developer refuses to conjecture what the lot sizes will be (and how often does that happen?), I would just use the typical lot size for each proposed use as evidenced in that community. Typical freestanding retail site, typical suburban office site, typical multifamily site, etc.

 

[MNRural]

If the developer has not done the feasibility analysis to determine the optimal lot sizes, configurations, street layouts, etc., that says a lot about the entire project.

With the costs you are talking about, I would assume that they would already have multiple purchase options from regional developers, national corporations, franchises, etc. on the lots.

My question would be how can a contractor bid on the cost when they dont know where the streets are, where the lots are, where the utility stub ins are???

It sounds more like you have something in between a piece or raw land, awaiting development, and an approved paper subdivision, ready to sell commercial lots. (A land owners pipe dream?) I would seriously question why they are not doing a phase in with the portions of the development that have buyers ready and waiting.

As for the sales tax incentive, you should continually ask yourself, is the development feasible without it???? What if the incentive goes away (after all, its politics). Maybe two values are in order.

Sorry to be so pessimistic. You must have a very very good market. In my region, this would be considered a bad development waiting to happen. Just my two cents (if its worth that).

 

[Terrel L. Shields]

The feasiblity, market study would should be central to developing a projection and I would also think that you would be looking at over a decade to develop fully - at least in my market -....This is a 6 figure fee in my book... too big a project for me.

 

[PropertyEconomics]

The amount of historical research necessary to complete this assignment is, in my opinion, huge. Searching past market downturns, tracking when sales began to occurr again (major pads and out pads), tracking interest rates (which we have not seen rise yet but will int he near future) .... yes this is a very difficult assignment to do well ... recent history will be of no help .... its gonna be a bear.
This is a very large retail development .. which typically will not occur until there are sufficient roof tops to justify the development. If you track how commercial development occurrs .. it always lags behind residential development, and I dont know aobut your market, but in my market there are no large scale residential developments occurring ... some infill lots being built upon but not a single new residential development has occurred since at least 2007 ... and there are many completely empty residential subdivisions on the market now ...

This is going to be a long term development in my opinion. If it goes through, I hope the lender doesnt mind being an owner.

 

[MNRural]

Appraise the three parcels already presold (I'm assuming) at full market value for a finished lot with subdivision costs and the remainder as an outlot (raw vacant land) for future development.