Lending team wants to know if H&B use is residential or not

[Lee in L.A.]

I saw a duplex last month consisting of 1 house of about 2400 SF and another of 500 SF. The larger one is over 100 years old and needs "everything". Roof electric plumbing HVAC windows and more. The small one is slightly better. I advised the client and they have been sitting on it. Now they as what the fee would be to do an H&B use analysis to determine if it is residential, or not. Zoning RD1.5-XL allows at least 5 units, maybe more with incentives. The laws are ridiculously complex. If it was in better shape I don't think I'd have much question. But as is maybe it would be better to tear down.

H&B use is residential with the zoning. How many units is another question and one I don't have experience or training with. I suspect that is what they really want to know. I'm thinking to tell them so and ask again to cancel this mess. It was previously listed as a development opportunity but did not sell. It is in Hollywood and there is a lot of redevelopment going on there. Ugh.

 

[CANative]

5 units is automatically over that line (mostly) and is fair game for a decline with honor.

You could probably do half a dozen easy ones in the same amount of time and with less stress.

 

[George Hatch]

That's an L.A. city zoning designation. You need land sales data. Your unit of comparison will be price/unit. So if your parcel has 7500sf it's good for 5 units. The 5000sf lot next door is good for 3 units, so sale price/3 = price/unit. If you find another sale nearby with R2 zoning and 5000sf then that's good for 2 units, so price/2.


That's how you value multi-family land in this region. Price/unit, and don't be shy about going back a couple years if that's what it takes to find your comps.

 

[Joe Flacco]

I don't understand how price per unit by itself would fit all scenarios. Does it not matter if you can do five 2,000 SF units or five 1,000 SF units? or mixture of different kinds of units?

 

[George Hatch]

I don't understand how price per unit by itself would fit all scenarios. Does it not matter if you can do five 2,000 SF units or five 1,000 SF units? or mixture of different kinds of units?

If you think about it virtually all of your SFR appraisals are analyzed on a price/unit basis. That's what you're doing when you take the sale price and make line item adjustments to it? That's not causing you problems.

For multi-family parcels the question a developer is asking is "what can I get on this site?" I can think of a LOT of examples where a project of 1000sf units might be more profitable than a project of 2000sf units. Residential units rent on a rent/room basis, not rent/sf basis, so any 3bd unit that's larger than maybe 1400sf is running into profitability problems when compared to a 1200sf unit - you're spending more to build without getting that much extra rent in return.

Getting back to valuing residential land (including subdivision land), price/sf doesn't work when your comps include sales with different zoning (hence different development potential). Which once you get out of the R1 scenarios will be more common than not. OTOH, parcels zoned for office or industrial of straight commercial ARE valued primarily on price/sf. The adjustments for location and utilities and such are applied to the price/unit or prce/sf, not to the sale price itself.

That is the simplified version because the costs of different designs comes into play with the higher density sites, too. For example, a high density site can only be maxed out if you put the tall multi-story building with subgrade parking on it. Sometimes it's more profitable to stick to the 2-3 story building with tuck under or surface parking. The general economics of the location plays a key role in those kinds of analyses.

But for the most part and when you're valuing SFRs with zoning that would allow for multiple units the straight comparison of the sales of the two property types is sufficient to task.

 

[glenn walker]

I saw a duplex last month consisting of 1 house of about 2400 SF and another of 500 SF. The larger one is over 100 years old and needs "everything". Roof electric plumbing HVAC windows and more. The small one is slightly better. I advised the client and they have been sitting on it. Now they as what the fee would be to do an H&B use analysis to determine if it is residential, or not. Zoning RD1.5-XL allows at least 5 units, maybe more with incentives. The laws are ridiculously complex. If it was in better shape I don't think I'd have much question. But as is maybe it would be better to tear down.

H&B use is residential with the zoning. How many units is another question and one I don't have experience or training with. I suspect that is what they really want to know. I'm thinking to tell them so and ask again to cancel this mess. It was previously listed as a development opportunity but did not sell. It is in Hollywood and there is a lot of redevelopment going on there. Ugh.

CA--If you want send me a private

 

[Joe Flacco]

For multi-family parcels that's how a developer looks at it. What can I get on this site?

Price/sf doesn't work when your comps include sales with different zoning (hence different development potential). Which once you get out of the R1 scenarios will be more common than not.

I'm not saying price per SF should work. It just doesn't seem logical that price per unit is what always works.

If you can have four 1- bedroom 700 SF units then would that lot be worth the same as a lot you can have four 2-bedroom 1000 SF units?

 

[Lee in L.A.]

That's an L.A. city zoning designation. You need land sales data. Your unit of comparison will be price/unit. So if your parcel has 7500sf it's good for 5 units. The 5000sf lot next door is good for 3 units, so sale price/3 = price/unit. If you find another sale nearby with R2 zoning and 5000sf then that's good for 2 units, so price/2.


That's how you value multi-family land in this region. Price/unit, and don't be shy about going back a couple years if that's what it takes to find your comps.

I have done one or 2 that were obvious teardowns, and that was my approach more or less. In this case I searched for 2-3 unit comps, not land value sales. Did not know how bad it was ahead of time. As I think of it, the thing is probably a teardown due to condition plus the development potential.

Joe, they will build those suckers as big as the city will let them. Old MLS listing said possible 5 units 1500 SF each. Wherever they got that from.

 

[Joe Flacco]

I have done one or 2 that were obvious teardowns, and that was my approach more or less. In this case I searched for 2-3 unit comps, not land value sales. Did not know how bad it was ahead of time. As I think of it, the thing is probably a teardown due to condition plus the development potential.

Joe, they will build those suckers as big as the city will let them. Old MLS listing said possible 5 units 1500 SF each. Wherever they got that from.

Now would that site be worth the same if possible 5 units 750 SF each?

 

[Lee in L.A.]

Now would that site be worth the same if possible 5 units 750 SF each?

I think not, but the zoning would be different too. You need to compare comps with same zoning as much as possible.