Is Build-to-suit Considered A Sale?

[Stephen J. Vertin MAI]

This is a fairly straightforward question with a follow-up. Does build-to-suit need to be reported as a sale when providing a history of conveyance?

I fully understand there is a difference between should it be reported and it must be reported. My question revolves around the mandatory factor and is it considered an actual sale?

Finally, if it is a sale can you use cost to construct as legitimate indications of comparable building cost. In other words is it both a comparable sale and a cost comparable?

 

[Michael P Jacobs MAI]

Good questions - "Yes" or at least "Why not" to the first. I would expect to see it as a peer. Save the reader aware of the "transaction" a little wear and tear and explain that it was a BTS contract, not a market-transaction contract, before they spend too much time investigating it themselves (that's the "analyze" part of the requirement). Certainly, the land purchase would be when within the time mandate for the rule. While the contract BTS costs I've seen are pretty much in line with other cost proposals and can be justified through MVS, most specialized BTS developers have developed their own economies of scale with simple and common hotel, fast food, C-store, etc. construction so the cost might bracket the lower limits of "market-standard" costs. I don't see any reason why they wouldn't be relevant, however.

 

[Gobears81]

Good questions - "Yes" or at least "Why not" to the first. I would expect to see it as a peer. Save the reader aware of the "transaction" a little wear and tear and explain that it was a BTS contract, not a market-transaction contract, before they spend too much time investigating it themselves (that's the "analyze" part of the requirement). Certainly, the land purchase would be when within the time mandate for the rule. While the contract BTS costs I've seen are pretty much in line with other cost proposals and can be justified through MVS, most specialized BTS developers have developed their own economies of scale with simple and common hotel, fast food, C-store, etc. construction so the cost might bracket the lower limits of "market-standard" costs. I don't see any reason why they wouldn't be relevant, however.

I agree on the first item. On the second item, I've found that build-to-suits tend to be somewhat high vs typical project costs, which I suppose makes theoretical sense since the builder/ developer performs additional services such as buying the land initially. That might be one of those differences between our two markets though. A build-to-suit sale that I came across recently was of a high quality medical office building containing about 55,000 SF and sold for $330 per square foot (including land), which I concluded is somewhat higher than typical construction costs on the property. I mention that because of the thread started this week about construction costs for large medical office buildings.

 

[hastalavista]

I'd say it is a sale and therefore must be reported; the conditions are not arm's length (the parties are related by a business venture).
Sounds like it would be a reasonable cost-comparable for another, similar, build-to-suit project.

 

[residentialguy]

Yes, it's a sale. Whether or not it reflects market is TBD.

 

[Michael P Jacobs MAI]

... I've found that build-to-suits tend to be somewhat high vs typical project costs, which I suppose makes theoretical sense since the builder/ developer performs additional services such as buying the land initially. That might be one of those differences between our two markets though.<snip>

Yes forgot about that - that's right, total cost is higher on BTS when they provide site selection and entitlements work. I just use the standard hard and soft costs for a "cost comp" however, which has mostly been on the conservative side on "commodity" construction like the basic "Suites" hotel or nationally branded fast food restaurant (... drug store, mini-market, etc.). Medical office and others being so homogeneous would be much less reliable. As always the answer begins, "It depends..."

 

[hastalavista]

Costs are costs are costs.
How they are allocated (who pays for what and when) is dependent on the project/scenario. So if I had the costs from such a project, itemized, it seems like a good cost comparable to use against similar projects.
If I had the total cost without the itemization, I'd want to find out what (if any) things are included that were atypical before I used it for an assignment (where, presumably, I would have everything itemized).

 

[Stephen J. Vertin MAI]

"I'd say it is a sale and therefore must be reported; the conditions are not arm's length (the parties are related by a business venture)"

That is an interesting thought. Is the business venture any different than buying the property?

 

[Tim The Enchanter]

I'm thinking using a build to suit as a comp for residential is an unacceptable appraisal practice.
Not an arms length sale.
I realize commercial is a different ball of wax.

 

[Stephen J. Vertin MAI]

"I'm thinking using a build to suit as a comp for residential is an unacceptable appraisal practice.
Not an arms length sale".

Another interesting comment. Is it possible some of these agreements are arm's-length? By the way, there is no fundamental difference between residential or commercial sales. All must meet the standard market value definition.

This is not trick feedback. I am not trying to solicit eco-chamber responses in what I already believe. I am interested in your reasoning.