"as Is" And "as Stabilized" Leased Fee

[GBR]

The subject is a former super market. Approximately 50% of the building has been renovated and is leased. The other 50% is in below average condition and is vacant. Is it correct to apply a hypothetical condition to the "as stabilized" value that the building is fully renovated and has achieved stabilized occupancy. While the "as is" value is based on the "as stabilized" value less estimated cost to rent up and loss of rent until stabilized?

 

[nstanbru]

While the "as is" value is based on the "as stabilized" value less estimated cost to rent up and loss of rent until stabilized?

Where are you accounting for the renovation costs?

 

[GBR]

Where are you accounting for the renovation costs?

As part of the cost to rent up estimated in the cost approach.

 

[Red Flint]

I would use two extraordinary assumptions, first for an as-complete for renovations (future value), then for an as-stabilized (lease in place, multi-year) 'later in the future' value. Want quotes for renovation and good data to estimate market lease terms. Explain effects if either assumption does not come to be, timing or plan.

 

[Gobears81]

What hasn't been mentioned yet but would likely dictate how this is analyzed is, who is the most likely buyer?

Most of the second generation big box or grocery stores (that aren't redeveloped) that I've seen have sold to owner occupants, although some "value add" investors might be a potential purchaser. But, the majority of the sales that I've seen are to a single user, whereas your property is already subdivided. There's dozens of potential re-uses of these properties, from self storage to a church to medical office to warehouse/ industrial. One use might require $10 per square foot in tenant improvements, while another might require $100+ per square foot. It isn't quite like a strip center that usually has narrower range of potential TIs in build-out.

 

[Deleted member 152047]

I would start with the income approach as that is where an investor (and most likely buyer) would start. You should call local retail experts and explain the real estate problem. They will likely know of some vacant boxes that you can look to for market rents for the vacant space. You should ask them what kind of TI's they would expect for this type of space, they will likely have a good idea.

I just worked on an appraisal of a freestanding big box that was going dark in Wisconsin and my client (the prospective tenant) wanted to know what the market rent for the space is. Luckily for me, after my 3rd call, I was able to speak to a local broker who literally did all of the retail leasing in the area and knew what was going on. He pointed me to a vacant big box that had been sitting there for 5+ years with deals that almost came to fruition at $5-7 PSF NNN with heavy TI's ($25-30 PSF). It is likely that the landlord will need to take a haircut on the first lease in your building before he can make money on a renewal or 2nd gen user.

I would add that an "as though stabilized" value indication should stand on its own (with a HC). Simply determine market rent for the space and cap it out. The "as is" market value would require the deduction of lease-up costs and an Argus run is probably your best bet. I would not determine an "as though stabilized" value then deduct the lease-up costs and EI to arrive at the "as is" market value.

 

[Zephyr999]

I just worked on an appraisal of a freestanding big box that was going dark in Wisconsin

East or west 'coast' of WI...lol? Could have arranged a Spotted Cow meet up...maybe on a next trip.

 

[Deleted member 152047]

East or west 'coast' of WI...lol? Could have arranged a Spotted Cow meet up...maybe on a next trip.

Burbs of Milwaukee. Where are you at Zephyr?

 

[Deleted member 152047]

I'll be in Pewaukee in the 2nd quarter if nothing else comes in sooner up there.

 

[Zephyr999]

Burbs of Milwaukee. Where are you at Zephyr?

West Coast...La Crosse County.
I'll be in Milwaukee 22nd May...condemnation symposium. What are the chances your set up in Pewaukee same time?