Dark Store Theory - Big Box Vs Assessors & Communities

[Abester]

No BEV.* No excess EI.

* The BEV argument opens a new can of worms and the argument falls apart. There is an active and a wide market of buyers from national portfolios to the little old lady who retires out of an actively-managed risky real estate portfolio for a passive less risky asset. These buyers all willingly pay the market 5.5%-6.0% cap rate of face rent. If you're to attempt to partition this income stream for BEV, the BEV discount rate is much higher, the duration is shorter. There is nothing transferable, being partitioned, or functioning separately, attributes of business value. it becomes counting the number of angels on a pinhead. There is no evidence of BEV occurring in the market, analytically or in actuality. When a Blockbuster goes bankrupt, they having followed a similar corporate strategy, then the investor takes a "haircut" off the leased fee value and the real property gets re-priced by the market to fee equivalent market rents and terms.

The other issue, at least that I find, is that the sellers of NNN investment properties including Walgreens and CVS, market these with a claim of relatively small land value and the potential to depreciate the balance of the price on their tax returns. None of the brokers I have contacted have been able to reconcile this position with the open court arguments of Walgreens and CVS saying that it is NOT all real estate. So they are getting the benefits of both sides of the argument at the same time.

 

[Deleted member 152047]

1. I don't get why it seems reasonable to value an occupied building if vacant.
2. I can see both sides of this one
3. True, lower assessed values will lower taxes, which will make others have to pick up the slack, but how taxes are dispersed is not our concern.
4. I don't agree with the argument here. If the lease is for the Real estate and it is arm's length then it is a market lease.

I understand that it is reasonable to assess a store as dark when it is dark and assess it higher when occupied, but it doesn't make senese to always assess it as dark. Lets say it cost $8M to build and the land is worth $2M. The value is $10M as occupied. Then it goes dark and the value is $6M because nobody wants it. While the tenant is in there it should be assessed at $10M not $6M.

"If the lease is for the Real estate and it is arm's length then it is a market lease." That is an inaccurate statement. Many leases are at rates well above market rates. This is a question of leased fee vs. fee simple. The real question is: How do you determine the market rent? What are your assumptions? A big box user that pays 7-8% in annual rent of the builder's cost to construct the facility is at market rent; however, the rent is likely well above the market rent for the space when considering prospective occupancy by another user. If we are looking at fee simple market rent (as dark or for another user), do you assume (as you would within your appraisal) that the owner will provide $30 PSF in TI, that it will take 24 months to lease-up, factor in your op ex over the hold, leasing commissions, etc? Or, do you assume a stabilized asset apply a "market rent," cap it out and call it a day?

When you have a market of 1 that can use a given big box in its current configuration, it is easy to argue that the assumption of a "market value" should be much lower than what that particular user is paying.