Dog Kennels

[tsiegel]

I am curious to know if anyone would ever consider approaching the valuation of a dog kennel as a going concern. I have typically done them simply with a SCA, but if I cannot find sales, I am curious how others might look at it.

Thanks.

 

[NachoPerito]

I wouldn't consider it. We did one where the business value was contracted out. We couldn't find applicable kennel sales in our research so we used the depreciated cost (most of the value was in the residential land and accompanying house) and relied on that for the RE value.

 

[glenn walker]

I would not do so (BUT) I'm located in Southern California and most Dog Kennels are licensed on a case by case basis and often the owner of the property agrees to a conditional use permit or temporary variance which often cannot be transferred. If the owner of the property sells the new buyer risks not getting the conditional use permit renewed. Note: It may be different in your state.

 

[Stephen J. Vertin MAI]

One of the coolest assignments I have ever done was a a state-of-the-art canine training facility located outside Leland, Illinois which provides canine protection for; The President of the United States, The US Department of Defense, The Pentagon, Government Services Agency (GSA), The United Nations, The Transportation Safety Administration (TSA), The Coalition Provisional Authority in Iraq (CPA), Ministry of the Interior, Iraq, National Mine Action Authority in Iraq (de-mining) The South African National Police Force, The Public Security Directorate of King Abdullah II of Jordan, Egypt, Afghanistan, Department of Homeland Security- Customs and Border Protection and Ministry of Interior United Arab Emirates.

Of course the training facility had a number of kennels and I had appraised a large amount of kennels prior to the assignment. We always appraised the real estate and what is now termed market value of the total assets of the business. Which is the market value of all of the tangible and intangible assets of a business as if sold in aggregate as a going concern. Or what we use to call "going concern value". Most of the work was done for private lenders.

I am not sure how banks would handle the matter unless it was part of an SBA loan. However, be aware, they have changed requirements. You can not longer simply be an RE appraiser to do this section of the report. You have to have a certain set of designations now no matter what passed experience you have had.

 

[Gobears81]

I am not sure how banks would handle the matter unless it was part of an SBA loan. However, be aware, they have changed requirements. You can not longer simply be an RE appraiser to do this section of the report. You have to have a certain set of designations now no matter what passed experience you have had.

At risk of going off of the dog kennel subject, what designations are becoming expected or required for going concern valuations now?

 

[Stephen J. Vertin MAI]

Be aware up till last year if an appraiser had taken the AI tangible-intangible course they were allowed to value going concern values for SBA loans. I do admit the course, stand alone, would not qualify most appraisers to perform complex going concern projects; however, I had several course in college and had been doing a lot in this area for years, so I think it sucks they changed this, but I don't make the rules. If I may be so bold to say some of these organization give no more credence as compared to seasoned people working in these areas for years, but I guess that is true with all licensing and designations.

This is me simply cutting and pasting from one of the larger banks regulation guidelines. I cannot warrant nor do I guarantee its accuracy:new_llying:

Any Going Concern Value involving $250,000 or more business enterprise value requires the valuation be performed by an appraiser from a qualified source:

A "qualified source" is an individual who regularly receives compensation for business valuations and is accredited by one of the following recognized organizations:
(a) Accredited Senior Appraiser (ASA) accredited through the American Society of Appraisers;
(b) Certified Business Appraiser (CBA) accredited through the Institute of Business Appraisers;
(c) Accredited in Business Valuation (ABV) accredited through the American Institute of Certified Public Accountants;
(d) Certified Valuation Analyst (CVA) accredited through the National Association of Certified Valuation Analysts; and
(e) Accredited Valuation Analyst (AVA) accredited through the National Association of Certified Valuation Analysts.

In addition, the appraiser must be appropriately licensed or certified In the State that the property is located.

Proof of the appraiser's qualification to prepare a "Going Concern Valuation" in accordance with current US SBA SOP must be reflected within the report (addenda).

 

[Howard Klahr]

That is the same language in the SBA SOP.

Clearly a going concern valuation of some property types is more straight forward than others.

With regard to the OP's question on dog kennels it will depend on the client's request for the type of value requested. In regard to utilizing the cost approach for this assignment, the indicated value would reflect the real estate value as opposed to the going concern. If sale comps were available, you would need to address the business compenent as part of your verification process. It is not much different for other special purpose properties like hotels, day care centers, service stations, etc.

 

[Stephen J. Vertin MAI]

With regard to the OP's question on dog kennels it will depend on the client's request for the type of value requested.

No argument from me if you have a client who knows and understands what they want. Further they should definitely understand what they are lending on. But that is not the OP's question. It is:

I am curious to know if anyone would ever consider approaching the valuation of a dog kennel as a going concern.

Kennels rent just like apartments or many other real estate vehicles. You have a certain amount of space, you have vacancies and you have operating cost. However, these cost are specialized above and beyond typical real estate and fall into business operation cost just like gas stations, hotels, landfills, etc., further buyers of the properties (just like the other examples) rarely care about replacement cost and sometimes sales comparison is fairly inaccurate. Most serious buyers are income minded. Since it has business cost most certainly going concern is a paramount consideration. My answer to the question is yes you should approach the valuation of dog kennels as going concerns.

I would however, add a lot depends on size of operations. A little mom and pop operations may only need sales comparison. But if it is an up and running going concern I stand by my statements.

 

[tsiegel]

Thank you all for the thoughts. My issue is this... I would be happy to simply do a Sales Comparison Approach and call it a day, but the property owner is planning to use the money to add kennels and the bank wants the as proposed valuation. In this circumstance, I am apprehensive to rely on the Cost Approach, as I am not entirely sure that the full cost of the additional kennel space will be realized in the market and that would not be reflected in the Cost Approach as the new kennel space would not have any physical depreciation. This is where I started considering the property as a Going Concern. My thinking is that this would allow me to capture the additional benefit of the new kennel space in the market value of the property accurately.

However, I think it is a mom and pop kennel (although I don't quite know as this particular client is not big on descriptions of their assignments) and a Going Concern Valuation of the thing may be a little over the top. I thought it was an interesting thought though.

As for the Going Concern / SBA issue... This is really a bummer. I took that class last fall to get on the directory for Going Concern properties. I thought the class was more or less bogus. I certainly did not learn how to appraise a Going Concern type property there. I learned a lot more working my way through these types of assignments over the years. Anyhow, I don't think I would have bothered with the class if I knew the SBA was going to change their mind. What a pain! I thought I read something recently that the SBA was considering altering their new policy.

 

[Michael S]

The SBA rules only apply if the business value is over $250,000. For a lot of typical commercial properties with a going concern value (car wash, gas station/C-store, etc.) the business value will be under that threshold as most of the value is in the real estate or FF&E.