Functional Or External Obsolescence

[hastalavista]

I had a feeling that my example wasn't overly clear, so I'll give some numbers. But, my bold is exactly what makes this case functional IMO. Here goes with numbers:

6-unit Property #1 located on Interior Road:
Cost to construct (as of today): $600,000
Land value: $100,000
Physical depreciation: 10%

Identical 6-unit Property #2 located one site over on Primo Road A:
Cost to construct (as of today): $600,000
Land value: $300,000
Physical depreciation: 10%

Now, let's say that NOI per unit for both properties is $6,000, with a cap rate of 7%. This indicates that the value is $514,286 before rounding (for both properties). This indicates that Property #1 on Interior Road has economic obsolescence somewhere in the vicinity of $125,714.
Property #2...is the market or economic conditions any worse than Property #1? No, but there is more depreciation that I think we both agree is site-specific. I still recognize $125,714 for economic obsolescence to Property #2. But, I also recognize the difference of $200,000 as functional obsolescence, due to the value not being any higher for either property.
If the market changes overnight and it suddenly becomes feasible to construct MF again, the value of both properties is $640,000. Since Property #2 has the wrong use for the site, which is again, site specific, and there is nothing wrong with the market, $200,000 would still be recognized as functional obsolescence for this property.

I actually feel that this case is more cut and dry than Terrel's example where it was feasible to build a higher priced house a mere 20-miles away...but I have a feeling that we are respectfully coming to an armistice

Ok, now I get it (thanks).
Notwithstanding the question of why Primo Rd A is more valuable than Interior Rd, I agree with your analysis if those are the givens.
Economic (the project isn't feasible if we build new and account for physical depreciation) of $125k for both and an additional $200k functional for Primo Rd because the non feasibility of the multifamily use exists even after economic conditions stabilize and Primo Rd doesn't generate any more income than Interior Road.