HBU of Church with high land value as vacant

[masmia]

I could use some thoughts on this appraisal problem I'm stuck on, and I know there are some here that enjoy the exercise.

Subject is a 1960's vintage church in an area with high land values, talking about $60 - $65 PSF + for residential sites of 1/2 acre to an acre. The site is zoned for single family residential use.

How do you prove the HBU as improved is redevelopment without seeing church financials?

Looking at sales and/or rentals of churches would require a location adjustment as there are none recent from this or similar high value areas. You can't cost it using SFR land and adding depreciated improvements cause you would be mixing HBU. The only recent sales from similar locations have been redeveloped.

I don't doubt HBU is redevelopment, just not sure how to prove it. Assignment has potential for trial and I'd like to prove this out.

Thank you for your thoughts and input.

 

[Deleted member 152047]

You don't. You value the land to its highest and best use, it sounds like the H&B use of your's is residential development. The highest and best use of the subject as though vacant and the highest and best use of the subject as improved do not have to be the same.

If your religious facility is located on a site with limited demand for development of other legally permissible uses, you might indicate that use of the site as a religious facility is the use most demanded for the site. Nothing about religious facilities passes the financial feasibility test. Almost all religious facilities suffer from functional and external economic obsolescence as soon as they are built. A new religious facility is analogous to buying a new car, as soon as it goes off the lot (is constructed) it loses 20%+ of its "value."

 

[DREA Dean]

You don't. You value the land to its highest and best use, it sounds like the H&B use of your's is residential development. The highest and best use of the subject as though vacant and the highest and best use of the subject as improved do not have to be the same.

^Correct. You first determine the H&BU as vacant. Did you really mean that SFR land values are $60-65 psf of land area? That would be $1.5 million or more for a 25,000 SF parcel.

What are 30 to 80 year old churches selling for within a reasonable distance? Do similar ones sell for more than the underlying land value of your subject property? I'm guessing the answer is no. If the property as improved with a church is worth $400,000 (to throw out a number), based on sales, and the land is worth $1.5 million, then it's obvious that the H&BU as improved is to raze the church and build a house or houses. If the numbers are close, then you have to factor in the cost of demolishing the current improvements.

Churches don't need prime residential or commercial locations, and are often located in fringe or side-street areas. Church values are influenced by underlying land values, sure. But when the land underlying value of a 50 year old church skyrockets, the H&BU almost certainly doesn't remain a church.

 

[J Grant]

I could use some thoughts on this appraisal problem I'm stuck on, and I know there are some here that enjoy the exercise.

Subject is a 1960's vintage church in an area with high land values, talking about $60 - $65 PSF + for residential sites of 1/2 acre to an acre. The site is zoned for single family residential use.

How do you prove the HBU as improved is redevelopment without seeing church financials?

Looking at sales and/or rentals of churches would require a location adjustment as there are none recent from this or similar high value areas. You can't cost it using SFR land and adding depreciated improvements cause you would be mixing HBU. The only recent sales from similar locations have been redeveloped.

I don't doubt HBU is redevelopment, just not sure how to prove it. Assignment has potential for trial and I'd like to prove this out.

Thank you for your thoughts and input.

what is typical buyer in area looking for... a site that can be developed, or a church to operate and run ( you know the answer ).Unless buyers for churches are active enough in area to comprise a buyer pool who can compete with spec developers to purchase for similar price. .

Assuming no protected status or land lease of the church,- if it can be demolished by a new owner the same as they can demolish a house , that is how the redevelopment market would see it.

 

[Terrel L. Shields]

As is the HBU, if not as valuable as the land, then the MV is vacant land value less cost to cure. If the building still contributes value, then I would calculate the external (economic) obsolescence as the spread between the vacant land value and the value of a more appropriate cheaper interior residential site. I believe that was the recommendation of the author of an AI manual on appraising churches. Most residential zoning classes allow a church. Denis and I used to argue whether such obsolescences were external (i. e. - due to external market forces) or as Denis usually argued were functional related to the overall function of the building. It is a choice...

 

[glenn walker]

Just some thoughts : First do not appraise churches but I am a commercial broker and have assisted in the sale of church buildings for some congregations. While trying to determine the values for sale I learned the hard way that Church facilities are usually classified as Special Purpose Facilities, or Limited Market Properties. A Church’s unique design is usually intended to meet the needs of a specific congregation, therefore Church buildings usually lack adaptability to other, more conventional uses. Consequently, title to Church buildings and facilities is transferred infrequently, which results in few comparable property sales.

My experience with churches including my sales were that the only reasons for Churches to change ownership are one, the congregation has outgrown their current facility, or two, the congregation has declined in membership, attendance and or financial capability and can no longer support their Church facility, or a developer has made a large cash offer to purchase the property . Finally most older churches are debt free and as land prices increase many want to sell and then lease newer different types of facilities. Whats difficult is there is no recognized income approach to valuing Church property, most appraisals of Church facilities incorporate only the traditional cost approach to value and the sales comparison approach to value. I have seen guys try to incorporate income approaches but in my opinion it's a flawed method because a churches congregation and cash flow is almost always based on if the members like there pastor. If he quits their income from donations and membership can drop faster than rock . So I would not go down that rabbit trail. Anyway Read the attached PDF by John T. Schmick on church appraisals and issues encountered. Some good stuff I read back in 1999 when I was trying to get my arms around these church appraisal issues.

 

[Gobears81]

OP - Nice signature

 

[George Hatch]

Agree with all of the above. It's real common for the large campuses in this region to get sold to developers for land value, depending on the zoning.

I should add that I never value residential land in the burbs in this region based on size; I always use price/unit and then adjust those units for size.

I've appraised many religious use properties in this region over the years -easily more than 100 - and unless they have a particularly centralized location or a more rural location there doesn't tend to be that much difference in the pricing that's attributable to location. That's one reason why they seem (to me) to be less likely to be redeveloped for land value in the outlying areas than in the high-value areas.

Your mileage will surely vary.

 

[masmia]

Thanks for the replies thus far. I'm familiar with the ins and outs of appraising churches including why the sell when they do, who buys them, and how to value them via sales and cost.

The questions is specific to demonstrating the HBU as redevelopment absent revenue information or sales with similar underlying land value. I'm thinking I may just provide a summary of sales of churches in the greater market area, demonstrating that the max value of any church anywhere in the market is X, and the value of the subjects underlying site is Y. At least I could point to something demonstrative of the conclusion.

 

[George Hatch]

I would think your comps for land value would be other land sales with similar development potential but without any of the mapping entitlements, not necessarily other religious use properties being sold for land value. If those land sales are pointing to a lower value for your subject than the sales of the religious use properties then that's the answer to your HBU question right there.