Sales Comparison Approach For Mixed Use Property?

[NC Values]

I am trying to appraise a 3 tenant, mixed use, commercial property located in an older, storefront retail area. The building is total 6400sf, with 50ft frontage split between 2 storefront tenant areas. The two storefront areas (total 2400sf) are suitable for retail use and comparable properties sell for approx. $100/sf. The third tenant area (4000sf) is at the rear of the building and is mostly unheated/minimal finished space suitable for storage or other low end uses. Comparable properties for low end use sell for approx $40/sf.

For the Sales Comparison approach, would it be valid to estimate the property's value as follows:

Subject value = (2400sf x $100/sf) +(4000sf x $40/sf) = $400,000.

(I would include two separate market grids showing support for the $100/sf & $40/sf unit values)

Appraisal assignment calls for appraising property "as is". Also the $400,000 value is close to the value indicated by the Income approach.

I am newbie more experienced in residential appraisals. Is this a valid approach?

 

[George Hatch]

Try to keep in mind that you are not trying to value a 2,400 SqFt retail building and a separate 4,000 SqFt shop building. You have a 6,400 SqFt building. When you're pulling comps for the two components, they should be of comparable overall size, i.e., 6,400 SqFt retail for the retail end and 6,400 SqFt workshop for the workshop end. That way, their indicators will reflect the overall scale of the investment as a whole. Since the components are not the same use, there may be a penalty in the market for the disparate uses sharing the same site. They might detract from each other in terms of marketability and potential rents because of the different uses conflicting with each other. Or maybe not, depends on the market.

In the Income Approach, each component may contribute to the net income at different rates. The 2,400 SqFt retail component may generate as much or more than the 4,000 SqFt workshop/storage area. The different uses might even require 'blending' the cap rates on a ratio basis according to their contribution if investor returns are much different between the two uses.

Mixed use can be a nuisance because it's hard to find really comparable proeprties with a similar mix, so you often end up having to collect separate sets of comps for each component. If you do it right, though, you'll find that it usually does end up making sense in the end.

 

[Terrel L. Shields]

You may be thinking along the correct line. The difficulty is finding mixed comps. But they are there in all but small towns. Hunt and hunt. Analyze just like you are thinking for each comp, do it consistently and see how it fits. Adjustments may be large but supported.