Flea market valuation

[Ken B]

I'm valuing a freestanding 30,000 SF big box which has a long history of use as a flea market. I was sent the previous appraisal performed a few years ago. That appraiser capitalized NOI from rents of the vendor booths.

I'm not sure that would be the proper method to value the property. I'm thinking income from a flea market is similar to income from an executive office suite operation. One would need to be consider the possiblity of business value and perhaps FF&E.

I can find no comparable sales of properties being utilized as flea markets in the South Florida area. So how would I estimate a credible cap rate for NOI from vendor booths leased on an annual basis when all similar sales are owner-user or single-tenant big boxes? I spoke with a very experienced retail broker who reported he would market the property simply as a big box.

Of course, I am being asked for both SCA and ICA approaches, including a DCF. I'm open to anyone's thoughts regarding the proper method to value this thing.

Thanks in advance.

 

[PL1957]

I'm valuing a freestanding 30,000 SF big box which has a long history of use as a flea market. I was sent the previous appraisal performed a few years ago. That appraiser capitalized NOI from rents of the vendor booths.

I'm not sure that would be the proper method to value the property. I'm thinking income from a flea market is similar to income from an executive office suite operation. One would need to be consider the possiblity of business value and perhaps FF&E.

I can find no comparable sales of properties being utilized as flea markets in the South Florida area. So how would I estimate a credible cap rate for NOI from vendor booths leased on an annual basis when all similar sales are owner-user or single-tenant big boxes? I spoke with a very experienced retail broker who reported he would market the property simply as a big box.

Of course, I am being asked for both SCA and ICA approaches, including a DCF. I'm open to anyone's thoughts regarding the proper method to value this thing.

Thanks in advance.

Aren't you glad you pursued the glamorous life of a commercial appraiser?

 

[Terrel L. Shields]

The owner-operator statement method is fine....

You have booth rents and typically a percent of the sales. If you can reconstruct a history of those rents, then I see no reason why not to use that as a valuation basis for the total property.

....then the booth income is the rents and the BEV relates to that. The FFE is basically a cash register and shelves/booths, right? The break out of FFE is going to be small most likely - and "management" could be allocated to that 10% and rents (real estate) to the monthly booth rents...

Piece of cake...

 

[Stephen J. Vertin MAI]

Ken:

Was it constructed as a flea market?

 

[Terrel L. Shields]

We've has several that were constructed as flea markets.
One later divided into 3 commercial spaces, one went to Dollar General, dont remember the other parts - red iron metal type building

Another was a flea market, then sold, then leased as a warehouse for a greeting card company, then a warehouse for a hatchery egg company. Red iron, open span
The third was a candle factory outlet first, then a Big lots type operation, etc.

 

[Ken B]

PL: absolutely!

Terrell: The consensus from other appraisers queried in a different venue is that flea markets are a going concern. Naturally, I'm not valuing the going concern. With the lease of the vendor space being 12 months or less, it has been suggested that comparable big box retail data is appropriate for estimating the MV of the real property.

Stephen: Not to my knowledge.

 

[Howard Klahr]

Stephen: No, It was originally a grocery store.

Ken - The booth rental is not any different than if you were evaluating a regional mall but only a smaller scale. Cap rates would reflect the short term nature of the leases and lack of credit tenants. Not that it is of much use but the property at the NWC of Lake Worth Rd and Jog Rd had a similar venture as part of a larger overall center (i.e. the anchor space was utilized as flea market space). It won't be directly comparable as this space as well as the overall center was renovated and the anchor space is now a Wal mart grocery.

Your flea market comps are Pompano Festival Market and the Swap Shop on Sunrise.

In terms of sales - using big box stores would require large location and condition adjustments. I don't know if it helps but you can look into the old Lakes Mall at 441 and Oakland, if it has not actually sold it is likely still listed for sale. I believe it is too old to use as a comp but the Wal Mart on SWC Oakland and 441 was once a Home Depot. Let me know if you need anything else.

 

[Ken B]

Howard,

not sure I was specific enough on the actual size to determine the property, but I guess someone familiar with the market could make a reasonable guess.

As far as big box comps go, a former Circuit City that was renovated for use as a furniture store and a couple vacant grocery stores come to mind for use as comps. And then there is a former gym that is an REO property which can't be given away.

I'm still thinking a flea market is analogous to an executive office suite operation.

 

[Michael S]

There's an old big box store in Albuquerque that got turned into a flea market, I believe it's about 100,000 SF. They converted it a few years ago and I think it's already slipping into foreclosure.

 

[Terrel L. Shields]

With the lease of the vendor space being 12 months or less, it has been suggested that comparable big box retail data is appropriate for estimating the MV of the real property.

Such spaces compete with other retailers. For a time we had several built for market when the antique/collectables craze was at its max. The Ozarks are a magnet for fall tourism. Obviously, once everyone got into the flea market business..."Collectables" which we once called "Junk Stores"... then the business was less profitable and therefore you saw the conversion of several of these stores to non-flea market uses.
In our area only 2 kinds were ever profitable. That was the small mom/pop store or the "big box" that was on a major highway. Tontitown, AR, a small berg had 3 large stores which were all on Hwy. 412, a major thoroughfare that is 4 lane and has no competing interstate to draw traffic off. One is now split up and only the smallest store remains because so many other Mom/Pop operations popped up.
So I wouldn't view a short term rental income differently than I would a longer term big box rental. Which has the most potential? A flea market w income? A Tractor Supply or other secondary big box occupant? Once you've extracted the management fee (the %) out then the actual space rentals are your income. While they are typically higher per SF, the rent loss is also higher. With a 40,000 SF warehouse the entire building is rented at say $4 a SF... 400 booths rented for $50 a month is a lot more money, but your vacancy is likly chronically high...20% or more.

So if the Flea Market is underperforming, its HBU may be for warehousing or retail store. If it is keeping pace with local demand...perhaps it should stay there as a flea market.