• Welcome to AppraisersForum.com, the premier online  community for the discussion of real estate appraisal. Register a free account to be able to post and unlock additional forums and features.

Large Vacant Class A Office Building In A Small Market

Status
Not open for further replies.

Michael S

Senior Member
Joined
Mar 18, 2009
Professional Status
Certified General Appraiser
State
New Mexico
I've been engaged to appraise a 120,000 square foot Class A office building in a smaller market with a population of about 50,000. This was formerly a regional headquarters for a large company and when they were bought out this building was no longer necessary.

It's definitely the best quality office building in the market having been built only 10-15 years ago. Short of the city/county government moving every single person into the property there's little or no demand from another single-tenant or owner/user.

I think the most likely buyer would be a private investor who would purchase this at a steep discount and try to convert it to multi-tenant use. Lease-up could take many years as most of the market is 1,000 - 5,000 square foot tenants. Not a lot of big law firms, or other professional officer users that typically occupy Class A office space. Some federal government tenants around but they usually have long-term leases and aren't likely to just pickup and move.

Is anyone aware of any sales (or attempted sales) of something similar? Or of any attempts to convert a large vacant office building to multi-tenant use that I might be able to use for some additional support in projecting lease-up? Even going back several years. I'd rather adjust for time/market conditions than try to support a reasonable location adjustment given the vast differences in supply/demand versus a much larger market.
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
Hmm. Could a hdq. still be HBU if a medium sized company was willing to move to reduce costs? I would think multi-tenant might involve some obsolescence to address, but I looked locally and discovered half the GBA = 80,000 - 160,000 buildings are small because our moron Realtors think GBA is the size of the lot in SF. Didn't find anything here in past three years.
 

Michael S

Senior Member
Joined
Mar 18, 2009
Professional Status
Certified General Appraiser
State
New Mexico
The first person I spoke to suggested they donate it to the city for economic development purposes. RCN was probably $20 million or so and at 10-15 years old physical depreciation wouldn't be a huge amount. I don't know what they have it at for book value but if they could get a $15 million deduction that could well be worth more than they could sell it for on the open market. I'm not sure if the IRS would require the donate value to include external obsolescence. If so it would wipe out a big chunk of that.
 

NachoPerito

Senior Member
Joined
Jul 25, 2012
Professional Status
Certified General Appraiser
State
Washington
Amazon is looking for a 2nd headquarters......

In all seriousness this sounds like a disaster. I would query brokers to see who the interest has been from and what the possibilities would be with the site.

I can't think of any examples of something like this.
 

AMF13

Elite Member
Joined
Jan 24, 2002
Professional Status
Certified Residential Appraiser
State
California
The first person I spoke to suggested they donate it to the city for economic development purposes.

What would the city do with it? Above my pay grade, but sounds like the HBU analysis needs work still. :shrug:
 

PL1957

Senior Member
Joined
Jul 19, 2004
Professional Status
Certified General Appraiser
State
Illinois
The first person I spoke to suggested they donate it to the city for economic development purposes. RCN was probably $20 million or so and at 10-15 years old physical depreciation wouldn't be a huge amount. I don't know what they have it at for book value but if they could get a $15 million deduction that could well be worth more than they could sell it for on the open market. I'm not sure if the IRS would require the donate value to include external obsolescence. If so it would wipe out a big chunk of that.
IIRC, the IRS requires market value for donation purposes.
 

RebelNYC

Junior Member
Joined
Aug 6, 2009
Professional Status
Certified General Appraiser
State
District of Columbia
I've been engaged to appraise a 120,000 square foot Class A office building in a smaller market with a population of about 50,000. This was formerly a regional headquarters for a large company and when they were bought out this building was no longer necessary.

It's definitely the best quality office building in the market having been built only 10-15 years ago. Short of the city/county government moving every single person into the property there's little or no demand from another single-tenant or owner/user.

I think the most likely buyer would be a private investor who would purchase this at a steep discount and try to convert it to multi-tenant use. Lease-up could take many years as most of the market is 1,000 - 5,000 square foot tenants. Not a lot of big law firms, or other professional officer users that typically occupy Class A office space. Some federal government tenants around but they usually have long-term leases and aren't likely to just pickup and move.

Is anyone aware of any sales (or attempted sales) of something similar? Or of any attempts to convert a large vacant office building to multi-tenant use that I might be able to use for some additional support in projecting lease-up? Even going back several years. I'd rather adjust for time/market conditions than try to support a reasonable location adjustment given the vast differences in supply/demand versus a much larger market.

The Empire State Building took 20 years to achieve stabilized occupancy. Single-tenant buildings are converted to multi-tenant use all the time, and the costs to make such a conversion are not usually a huge deal, but it could be in your market if rents are really low.

Honestly, your best bet for something like this is not comparables, but a fundamental market analysis of office demand along with good surveys of brokers and ideally other market participants.

Look at the supply of office space you have, find out the average space per office worker, the number of office employees, and try to project how or if the number of office using employees is going to increase. You probably did not get the fee to do this kind of work, but performing such an analysis is far more credible than referencing meaningless comps.
 

leasedfee

Member
Joined
Oct 14, 2007
Professional Status
Certified General Appraiser
State
Colorado
Rebel said it better than I could have. . . . The WTC took a dozen years to stabilize. I did a new sorta-sexy headquarters which became vacant after the dot.com/telecom bust. Sat vacant for maybe 2 years. . . . Did a similar large Class B suburban HQ that basically required new paint and carpet but otherwise good to go. I basically subtracted the prolonged absorption rent/expense loss and brokerage fees from a stabilized value, can't recall but maybe based on 2-4 tenants.
 

Michael S

Senior Member
Joined
Mar 18, 2009
Professional Status
Certified General Appraiser
State
New Mexico
The Empire State Building took 20 years to achieve stabilized occupancy. Single-tenant buildings are converted to multi-tenant use all the time, and the costs to make such a conversion are not usually a huge deal, but it could be in your market if rents are really low.

Honestly, your best bet for something like this is not comparables, but a fundamental market analysis of office demand along with good surveys of brokers and ideally other market participants.

Look at the supply of office space you have, find out the average space per office worker, the number of office employees, and try to project how or if the number of office using employees is going to increase. You probably did not get the fee to do this kind of work, but performing such an analysis is far more credible than referencing meaningless comps.

I planned to do a FMA but I'm also looking for sales to support what investors are actually willing to pay to take on this kind of risk. I recently appraised a smaller office property in the market and there wasn't even much demand for Class B office space in the $12-14 FSG range. If this building were in Albuquerque it would probably take a couple of years to stabilize in the low $20/SF range. In a market that's teetering on the edge of recession with declining population and relatively high unemployment..... considerably longer. Market rent might be $16-18/SF at most and operating expenses are probably going to be in the $6 - 9/SF range.

I actually got this assignment from a referral from a couple of local brokers. They were stumped on how to even approach something like this in their market and wanted to pick my brain when I was asking them about my prior assignment.
 

Michael S

Senior Member
Joined
Mar 18, 2009
Professional Status
Certified General Appraiser
State
New Mexico
What would the city do with it? Above my pay grade, but sounds like the HBU analysis needs work still. :shrug:

His idea was the city could use it to try and attract companies with free/discounted good quality office space. Or they could occupy it.

I talked to another broker who had been marketing a similar white elephant type industrial property in a very small market. It was built to suit for a specialized high-tech user and there's been little or no interest in buying it. It sounds like they're going to just hand the property over to the city and walk away. I don't know all the details but it must make sense for them.
 
Status
Not open for further replies.
Find a Real Estate Appraiser - Enter Zip Code

Copyright © 2000-, AppraisersForum.com, All Rights Reserved
AppraisersForum.com is proudly hosted by the folks at
AppraiserSites.com
Top

AdBlock Detected

We get it, advertisements are annoying!

Sure, ad-blocking software does a great job at blocking ads, but it also blocks useful features of our website. For the best site experience please disable your AdBlocker.

I've Disabled AdBlock
No Thanks