Indulge me - stabilized value

[CANative]

A fee assignment my associate was working for a 30K/sf neighborhood center inspired the question for several reasons. It is 60% occupied in a 90% market. Class B design but on the edge of town. Multi-tenant and a couple of tenants left and the tenant of a very large space left.

The owners are trying to get $24 but the market is clearly at less than $18.

 

[Ken B]

Maybe someone should run an AVM on it...

 

[CANative]

Maybe someone should run an AVM on it...

I don't know what you mean by that. My associate is a commercial appraiser and this is a real assignment for a lender. I was asking for myself, not for my colleague.

 

[PropertyEconomics]

A fee assignment my associate was working for a 30K/sf neighborhood center inspired the question for several reasons. It is 60% occupied in a 90% market. Class B design but on the edge of town. Multi-tenant and a couple of tenants left and the tenant of a very large space left.

The owners are trying to get $24 but the market is clearly at less than $18.

One question and a comment:

1) .. What is the current occupancy level for similar located space?

2) .. Management should not adversely affect the market value of the property, though it may be noted, current management is keeping the property from achieving market occupancy and rent levels. An important issue to tell the lender (client).

 

[Ken B]

I don't know what you mean by that. My associate is a commercial appraiser and this is a real assignment for a lender. I was asking for myself, not for my colleague.

You liberals have completely lost any sense of humor. I wasn't serious and wasn't poking a stick at you or anyone else. It was a poor attempt at a joke in an acknowledgement that commercial property takes much more analysis than a typical residential property.

You have to know your market and submarkets. It is possible for a submarket to be comprised of a single property.

FWIW, I am working on a multi-tenant office building that I also appraised last year. Last year, it was doing well. This year, not so much. Loss of a branch bank anchor which failed and is terminating its lease prior to expiration and another long-term medical tenant who retired instead of renewing her lease have hurt it recently. These were not foreseen events last year, although there was some caution indicated by the nature of the bank anchor. Another tenant is negotiating to expand into the branch bank space, but at terms much inferior to the bank's lease.

However, based upon its high visibility at a signalized intersection of two arterials, a historically high occupancy level, and no evidence of any submarket factors adversely affecting the property, I am asserting a relatively quick 12-month lease-up back to stabilization. That said, I am considering the nature of the tenants and the age of the property before arbitrarily estimating stabilization at the historical level typical for the market or submarket, or even the occupancy history for the property itself. That past is just that. It may or may not be indicative of the future.

 

[CANative]

lol... JSmith has gotten me paranoid.

 

[CANative]

I've done a lot of property you describe but as an advocate in tax appeal work.

The property we're talking about now: One of the sales was almost across the street and similar in size but more tenant spaces and occupancy was at or almost 100%. But it was built in the early '70's, concrete block construction and a pretty plain design. But rents were at $1.25 or so and most were long term. The subject was built in late '90's with a third building added in mid 2000's. It's at the edge of town with nothing down the street except for scattered residential. Coming toward the subject from this direction attention is focused on the traffic signal with a very visible Jack in the Box and some other retail stuff and the subject is kind of set back from the street with trees partially blocking the view. Approach the subject coming from town... well by the time you get this far you're going home and have already done your shopping. :laugh: So people using this center are going to go there because there's something specific they want.

Then there was the dynamic that there is a large project going up across the street where the ground was just being broken. A trip to the county admin center reveals that it is to be a large mixed use project with several hundred residential units (townhouse type or condo) and about 29,000 feet of retail and commercial use.

On the one hand this may be competition for the subject but on the other hand it may mean new customers for the subject property, not to mention the synergy of more development leaving or entering town.

Overall, my associate concluded about 10% "normal" or market vacancy. This was also the conclusion of the market participants he interviewed (lots of them.)

 

[Ken B]

FWIW, an experienced broker who specializes in bank leases, and who I interviewed last year for this property, thought the branch bank space could have leased for more than was being realized by the tenant in place at that time. Currently, an adjacent tenant is negotiating to lease the space at about half the rent the broker estimated reasonable for the space last year.

Moral: brokers are human also.