Retail/Light Industrial Appraisal

[runner52]

A bit stunted on this one. Went out to inspect this property today. From the freeway it looked to be two warehouses. When I got there, one of the buildings was in fact a fully built out retail boating sport store although it is a metal steel frame building. The second building is a building that services boats (Warehouse) but with a front retail, inventory area. It is an owner occupied property. So what I have is one 6,000 SF retail and one 5,000 SF warehouse. I don't think I am going to find sale comps for this property that is basically 50% retail and 50% light industrial on the same property unless I find a retail with rear warehouse/shipping/receiving area. I am wondering if in addition to Income (get lease comps for retail and lease comps for warehouse and blend the two), I should perhaps do the Cost Approach although the buildings were built in 1999 so have depreciated quite a bit. Thoughts?.

 

[hastalavista]

Putting a retail use in a warehouse space may work for a specific type of business, but I'm not sure that changes the property's H&BU from warehouse to retail.

Is your subject really comparable to retail-use properties (it may or may not be.. I don't know).

You can do the cost approach, but you'll face the same problem: What's the H&BU of the land? If it is warehouse/light-industrial, you are back to square-one, no?

 

[Michael S]

There's not a lot of difference between a retail showroom and a warehouse. Lot at a big box store, it's a warehouse with better HVAC and finishes, but it' still just a warehouse essentially. A lot of light industrial buildings will have showroom type tenants. I appraised an industrial condo where the partial owner-user operated a flooring distribution company and there was a good sized showroom in front displaying all of the products.

It's going to come down to HBU. Is it retail, industrial, or both? I'll bet you'll find that the retail/showroom type space commands higher rents than a straight warehouse would. If you had and identical building hidden behind this one where there was no freeway visibility, would it have a retail type tenant? Probably not. The cost approach might be meaningful but it depends on how good your land value data is as well as your depreciation data. From what you've posted I would say sales and income will be your best bet, although sales might take some searching to find similar industrial properties with retail appeal and good visibility.

 

[Mountain Man]

Have a lot of retail/warehouses in our area. Mostly along secondary commercial corridors and just on the fringe of development. Paint stores, beer/liquor stores, wholesale carpet or bedding stores, boating supplies and repair, etc. All have about 50% office/retail, and rest is warehouse. I'd look for similar buildings that are not in developed industrial parks.

 

[Stephen J. Vertin MAI]

Runner52 welcome to the forum. Do not confuse current use as highest and best use as others have pointed out. I was trained to always consider current use first due to possible costs associated with changing current uses to alternatives. While it makes sense from a holistic appraisal theory stand point (financial feasibility) I don't believe I have read this (straight-out) in any appraisal literature. Anyway, as some have said there are a number of big box users now that are basically warehouses. Hey how much does it really cost to throw vinyl tile on the floor? So in some cases with today's category busting construction, I try to understand (either through data or reasoning) what could I sell the appraised property as? That is fairly easy in both small and larger markets by considering what is currently selling that is similar to my property? Other questions to ask are was it built for this purpose, if not what was it before and does freeway exposure really add value? I cant answer without seeing first hand. However, I have seen dozens of situations where being near the freeway adds nothing. It depends on the traffic count and its exposure to travelers. Remember by-passers are moving from 55 to 70 mph. Some exits come right on travelers, some only have one-way access and some have a surprising low traffic count.

 

[Terrel L. Shields]

Surrounding Wal-Mart hdq. is "vendor space" which is a building that combines office space and warehouse space. Typically, a building might have office and parking lot in front, and the back half is warehouse and has access via overhead doors. Some intended for single tenant and others having multiple tenants. Sounds like you have something similar in utility. Would be easy here - but...I don't know your local market - example -http://www.loopnet.com/Listing/17922268/1408-E-Central-Avenue-Bentonville-AR/

 

[CANative]

Putting a retail use in a warehouse space may work for a specific type of business, but I'm not sure that changes the property's H&BU from warehouse to retail.

Is your subject really comparable to retail-use properties (it may or may not be.. I don't know).

You can do the cost approach, but you'll face the same problem: What's the H&BU of the land? If it is warehouse/light-industrial, you are back to square-one, no?

I do half a dozen like this every week. There is no discernible difference in the income.

 

[runner52]

Thanks all.....the zoning for these two buildings is RC, Rural Commercial. Essentially it is located along a built up highway system that transitions from one built up county to a more rural one but also one where many people take their boats and vacation. There are similar retail and warehouse uses surrounding the buildings. Liken it to an Ace Hardware store that is in a more rural area only sporting/boating goods. Then add a service garage that services/repairs boats for people. The retail building is built out nicely...carpet flooring, painted/textured walls, drop acoustic ceiling, 6 offices and a kitchen with a rear loading area. The warehouse has a front parts and service area with a service garage to the rear. There is a large open yard. There are both commercial and light industrial uses surrounding the subject so it's difficult to say that the highest and best use is either retail or industrial only. Now that being said, if the highway was not there (giving it good access and exposure), the best use may be light industrial with small retail portion. The owner built both buildings in 1999 for $1.2 million dollars so as you can imagine, they are not just metal warehouses. I have decided to do the Income and Sales because the depreciation is too subjective for the Cost Approach. I have found a couple of comps and am doing further searches. I always appreciate this forum's input...thank you.

 

[leasedfee]

What Mountain Man said. Retail-warehouse is its own H&BU. Hint: Don't use retail box comps. Sorry, feeling lazy and didn't read other's posts.