Franchise fee vs value?

[Lawrence R.]

Need some help here in the Assessor's office.

Is the franchise fee part of the "value" of the building? We have a sale for 2.6 million for a Chili's restaurant, but longhorn's next door just sold for 1.6 million. We can't get our heads around the fact that longhorn's is a superior building, larger, etc...

We are assuming that there is some intangible, as land values should be the same.

Of course, we use a cost basis to come up with value when the assessor's hat is on, but in either case, would you consider the franchise fee as part and parcel of that business?

If you need more info, let me know, I will try to provide it.

 

[Lost Cause]

Of course, we use a cost basis to come up with value when the assessor's hat is on, but in either case, would you consider the franchise fee as part and parcel of that business?

The biggest problem you face is the fact that cost has little to do with value.

Franchise fees would be part of the business and impact the business value. They shouldn't be considered when valuing the real property.

 

[Mark K]

Are you certain that the sales are arms-length? I'd want to be sure that one or the other wasn't a sale from one arm to another of related corporations.

What is the cash flow from each building lease? Maybe an investor was paying more/less due to the lease terms.

Also, the purchaser may think the Chili's lease was more stable, more reliable long-term income vs. the Longhorn and willing to accept a lower rate of return, hence the higher price.

Could be a combination of any or all of the above. Personally I wouldn't attribute a franchise fee to the fee simple building valuation but it could be considered valuable in the income approach.

If either of those buildings were vacant, how or would your office consider that fact in the assessed value? Or do you value just the improvements and land?

 

[Lawrence R.]

Thanks... one further question....

Is there a place where a franchise fee would be disclosed in a RE transaction? Perhaps on the settlement statement?

In this politically charged atmosphere, and appraiser putting 1.6 million on a 2.6 million dollar sale is going to be scrutinized.

Is there a way to determine this fee? Other than someone just saying so?

 

[David Bailey]

Need some help here in the Assessor's office.

Is the franchise fee part of the "value" of the building? We have a sale for 2.6 million for a Chili's restaurant, but longhorn's next door just sold for 1.6 million. We can't get our heads around the fact that longhorn's is a superior building, larger, etc...

We are assuming that there is some intangible, as land values should be the same.

Of course, we use a cost basis to come up with value when the assessor's hat is on, but in either case, would you consider the franchise fee as part and parcel of that business?

If you need more info, let me know, I will try to provide it.

Franchise "fee" is an expense, paid to the restaurant, hotel, etc. company.

You would need to contact one of the parties involved in each of the sales and find out what was included in the sale price...real property, FF&E and business value could be included or omitted, and may be different between the Chili's and Longhorn.

 

[Jim Mallon]

We're currently valuing a franchise hotel for assessment purposes out here in California. It is our finding that "goodwill" or "business enterprise value" is not a taxable component of property value and, as such, we are excluding that component of value from the assessment and enrolling a value less than the total consideration.

You can find a ton of good information about this topic in the Appraisal Institute's "A Business Enterprise Value Anthology," David C. Lennhoff, MAI, CRE, Editor; published in 2001.

 

[Fred]

Is the franchise fee part of the "value" of the building? We have a sale for 2.6 million for a Chili's restaurant, but longhorn's next door just sold for 1.6 million. We can't get our heads around the fact that longhorn's is a superior building, larger, etc...

Is that for realty or for the business?

 

[Lawrence R.]

Is that for realty or for the business?

The realty.

 

[H.B. Userman]

Do assessments consider leased fee interests? I thought assessments were based off the Fee Simple value. But I'm not an assessor.

 

[Lost Cause]

Do assessments consider leased fee interests? I thought assessments were based off the Fee Simple value. But I'm not an assessor.

If the assessor is exclusively using the Cost Approach, they cannot possibly be considering the leased fee interest.