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Enterprise Zones

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Bill_FL

Senior Member
Joined
Aug 23, 2002
Professional Status
Certified General Appraiser
State
Florida
Has anyone done an appraisal in an Enterprise Zone since they were established? Have you been able to measure any affect on marketability or value?
 

Steve Owen

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified General Appraiser
State
Missouri
I have done several appraisals in Enterprise Zones, which are tax reduced development zones in Missouri. (I assume that there could be other programs with the same name, but different purpose.) Because taxes are less, that affects the income approach by lowering expenses for the fee simple appraisal or lowering those expenses for the first several years, or possibly for the entire lease term, in a leased fee situation.

So far, I have not had to specifically consider the impact of the zone on marketablilty because I was able to get comparable sales of properties with similar influences. In my opinon, the problem is similar to appraising residential properties in "good" (read high tax) or "bad" (read low tax) school districts. If all the comparable data comes from the same zone or district, then you might not have to address the effect of the taxation on marketability as long as you have enough good comparalbe data. It would, however, seem to be a reasonable assumption that marketability should be enhanced within the zone if other underlying factors are not so negative as to override the advantages of being in the tax preferred situation.
 

Bill_FL

Senior Member
Joined
Aug 23, 2002
Professional Status
Certified General Appraiser
State
Florida
Steve,

Thank you for your reply. In this case, the situation is for ad valorem. If you have not had an opportunity to do this work, the income approach is done slightly different. First, RE taxes are not considered in the expenses.

When developing cap rates, the sales used also have their taxes backed out of expenses. This results in an "unloaded" cap rate. To this, one adds the effective tax rate, which is the millage rate x the level of assessment. If your jurisdiction has a level of assessment (all have one) of 92%, then the formular for the cap rate looks somthing like this.

Unloaded Cap + (Millage x LOA)= OAR

This is done so that the taxes are not a factor of value.

The problem is, I have not been able to find sales of income property in an enterprise zone. Have the ones you found had a cap rate similar to comparable buildings outside the zone?
 

Steve Owen

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified General Appraiser
State
Missouri
That's a good question, Bill. I have not done ad valorem work, so I'm not sure my answer to this one is applicable either. Seems to me that if you are trying to determine a marketability factor or adjustment for the zone, the best method would be to pair up your property with other ones that have similar characteristics, but are outside the zone. The rub is that if they are not in similar locations, there may be some locational adjustment needed other than for the zone. Though problem, and one that probably cannot be conclusively solved without adequate comparable sales data.
 

C. Kevin Bokoske MAI

Junior Member
Joined
Jan 30, 2002
Professional Status
Certified General Appraiser
State
Florida
If the typical tenant in an Enterprise Zone is a single-tenant industrial tenant, in some markets, these are leased on a triple-net basis, with the tenant responsible for all of the property expenses, including r.e. taxes. You can then capitalize the NOI, after making a proper allowance for V & C and a miniscule amount for other owner expenses, and get a value indication without referring to the r.e. tax or ETR.

Kevin
Memphis
 
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