Ray Miller
Elite Member
- Joined
- Feb 20, 2002
- Professional Status
- Licensed Appraiser
- State
- Wisconsin
Trying to get my mind around this problem or miss understanding of the appraisal process that I have. I slept on this last night with the 10 inches of rain and heavy winds and still could not come up with an answer. So here goes:An appraiser calls asking information for comparables for a projected equine project. That do I know the Pat Parelli concept of the equine and care it needs because this is what the complex that is going to be built is using a form of this concept. We talk a bit and I find out that the subject is going to hold around 100 head of horses on 60 acres, have a large indoor arena and only 10 box stalls. We talk a bit and I extract a bit more information from him about the project. Fees the owner is going to charge, where he expects to generate the business for the complex. The owner business knowledge and cost of doing business. (by the way these Parelli, Lyons, Geake CO Pony Boy, Pate, Anderson and others make their income from selling merchandise, books to the people that attend there clinics, from there web sites. They have gussied up basic horse knowledge package it in a Medicine Man Show and sell it to the believers. They come and go every year or so.)
After our conversation I come to the general conclusion that this like 99.9% of the horse complexes in the country will need to subsidized by out side funding. That the complex will not pay the business expenses nor show a profit. No return of Investment and no return on investment.
The list is almost endless on what an appraiser would need to know about the local market for the equine industry, the regional market, the national market and international market. They would need data from the last 20/30 years about the industry, past trends and what to expect in future trends. They would need to know equine management, stable management and business management of such an operation.
The complex is going to cost upwards of (Mod edit) "A bunch of money" or more.
I gave him a list of a number of cities and location of high end horse operations could be found, but caution him to look in depth at the books, because most are supported by outside income, owner’s labor and land not counted in the cost of doing business. That in most case they are used as a tax write off. A list of horse operation in an around the area that have failed or are failing.
He would need a detail business plan of the income that can be supported for such an operation and cash flow for income and expenses. Which it appeared he did not have or what little information he did have was incorrect.
I think we left the conversation at he had to show that the operation/business/concept would at lease break even on the appraisal.
It is not the responsibility of the appraiser to show the value of the real property and the real income that business would tend to generate. Not some pie in the sky number to hit to make it work on paper? Would not all the numbers need to be supported by real data?
The cost approach would should the amount of money put in the project? The sale approach would show the amount it could be sold for. And the income approach would should the value of the income stream for the business. The cost approach would be the easy number. But from what I experience the income approach would fail and the sales approach would fail.
So is it not the appraiser’s job to show both the good and bad side of an appraisal of this type, not just try and make a break even number work or a positive value if in truth it can not be had??? Would not the appraiser really need an in-depth knowledge of the equine industry??
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You mean the value of ownership of small proposed box would be unaffected by having it pre-leased to - who is that company you are always posting about that has its own submarket and its own cap rates - oh yeah, Walgreens? I always thought that what could to be done with sticks and bricks was referred to as HBU, and it has relevance.