Contributory Value Of A Foundation To Land

[BudBock]

I've an out parcel adjacent to a new retail center anchored by a name brand grocery store. The parcel's owner constructed a needed block retaining wall along to northern perimeter to aid in creating a level lot. They subsequently ran utilities and laid a foundation in preparation for constructing a building intended for an office related use. Land prices in this immediate area have doubled in the last year.

Since the foundation was laid, a market participant has offered to purchase the parcel. Thus, I was engaged to appraise the market value of a parcel that is improved with a retaining wall and a ready to build upon foundation. What would be the foundation's contribution to the market value of the land? Someone might desire the specific layout of the foundation but that would be considered investor value. The majority of the market would want to establish their own building creating the possibility of a cost to raze being added to the parcel's value as if vacant. Anyone with a similar problem or have appraisal theory to suggest?

Thanks.

 

[Howard Klahr]

While you indicated that prices have increased during the interval, you do not convey any onformation about supply i.e. the availability of alternative sites. Also does the subjuct site have any unique characteristics that would raise the value/demand of the subject site above that of others?

Is the highest and best use of the site for office use? Is there anything unusual or unique about the foundation or the building that would result from its use? Would that conform to the H&BU in terms of the resulting building size and layout?

Contributory vale of the existing foundation would not reflect investment value especially if it conformed to H&BU. How old is the foundation? Does it meet structural requirements i.e. has the exposure caused any issues i.e. is there an engineering report?

Too many questions needing answers. However contributory value is likely going to be based on depreciated cost in that I don't believe that you'll find many transactions that have completed foundations.

 

[Gobears81]

I like Howard's take on whether the foundation conforms to the ideal improvement of the HBU. I have seen a couple sales with foundations and they haven't contributed to a higher price, but I did not conclude them as having negative value also. You mentioned having utilities run and presumably some site prep costs such as grading. It might be worth examining the cost of the site prep/ utilities extension and foundation, as well as the cost to demolish the foundation, depending on the highest and best use conclusions.

 

[BudBock]

A similar sized out parcel across the service road is listed and active. Both parcels share similar attributes; flat, cleared, just off a major highway but within the line of sight, same access and zoning. The surrounding properties are almost solely fast food, banks or finance related. The foundation is a month old. The reasoning for alluding to investor value was specific to the foundation. Even if a market participant wanted a similar use building, there's little chance they would want this exact layout. There's nothing functionally wrong with the layout. An investor with a similar plan as the owner could take advantage of the existing foundation and build what was proposed. The market would probably want their own version of what they deem is needed for the location.

 

[hastalavista]

If your assignment is for market value, then get rid of the "investor value" concept because it is not applicable.
Right now, the foundation is an improvement on the site. It may or may not have any contributory value. If the foundation conforms to what the ideal improvement should be, it may have some value (and, maybe no contributory value). If it is different than what should exist, it may have no contributory value (and potentially require a deduction for demolition).

If land has "doubled" and depending on the size of the foundation, it may or may not move the value needle. I have parcels in my markets with improvements on them that no longer contribute value to the site; depending on the cost of demolition, those improvements may or may not impact value. The market participants will typically inform me how the market reacts to the condition.

 

[BudBock]

I guess its time to visit some commercial builders I know in the area and ask some questions. It'd be nice to pick up some lease rate and entrepreneurial incentive data while there.

Thanks for the responses.

 

[Howard Klahr]

The foundation is a month old.

Why was develpment halted after only one month?

Even if a market participant wanted a similar use building, there's little chance they would want this exact layout.

What information do you have to support this claim? Keep in mind that if true the the subject improvements suffer from functional obsolescence. If so why?

There's nothing functionally wrong with the layout. An investor with a similar plan as the owner could take advantage of the existing foundation and build what was proposed.

These statements are contrary to your previous statement. Market data and H&BU would identify which is correct.

 

[BudBock]

The construction was halted because an offer was made to the owner for the subject along with eight additional properties.

Not all similar use buildings have the same layout. If this were true, one set of plans for each genre of building would suffice. The functionality of the layout would please some of the market while others would want nothing to do with it. The property is located in a city with less than 30,000 inhabitants. There have only been four land sales in this stretch of highway (approximately 2 miles) in the past four years. Three involved razing older structures to subsequently construct a bank and two fast food restaurants. The fourth is the subject property. Its not much to go on for a regression analysis.

I spoke with a CCIM/MAI this afternoon regarding if the foundation had market value. His answer was "it depends" and that "given the lack of data, it would be difficult to support or disprove either conclusion".

 

[Howard Klahr]

Not all similar use buildings have the same layout.

This applies to improved properties as well ... doesn't it? The analysis of the ideal improvement as part of the highest and best use will address this.

There have only been four land sales in this stretch of highway (approximately 2 miles) in the past four years. Three involved razing older structures to subsequently construct a bank and two fast food restaurants.

These clearly have different H&BUs which is why they resulted in different uses.

The property is located in a city with less than 30,000 inhabitants.

Sounds like there might be an abundance of alternative sites which would influence the H&BU then wouldn't it?

 

[Michael P Jacobs MAI]

A similar sized out parcel across the service road is listed and active. Both parcels share similar attributes; flat, cleared, just off a major highway but within the line of sight, same access and zoning. The surrounding properties are almost solely fast food, banks or finance related. The foundation is a month old...

Howard's been great on this - just copy and paste for your HBU lol. Given that (as you have implied) the market is active but potentially over-supplied, the owner may have finished the undergrounds and placed the concrete just to promote the pads for sale. If so, this approaches a marginal-buyer situation where the buyer(s) that can use the foundation "as-is" would not have to pay much more than the buyer of a vacant pad. Demo costs are little here, especially if the seller has surplus construction capacity since placing a turnkey-foundation on spec. implies to me that he has access to the materials and labor at nominal cost. I agree with the CCIM/MAI and the value in place could be anything from negative (demo) to full cost to the right buyer/builder.

GREAT HBU exercise for us all! Great post! Another one that should be CE credit!