Valuing a vacant building

[larryhaskell]

I'm discussing with a friend about the possibility of doing appraisals for commercial & inductrial property owners for tax reduction purposes. My friend has experience in this area but I'm still taking a long look at this idea. As I've thought about the process, I began to wonder how one would value a vacant commercial/industrial building with no income in a down market. In some cases some properties could be vacant for a year or more.

 

[Financially Feasible]

I'm discussing with a friend about the possibility of doing appraisals for commercial & inductrial property owners for tax reduction purposes. My friend has experience in this area but I'm still taking a long look at this idea. As I've thought about the process, I began to wonder how one would value a vacant commercial/industrial building with no income in a down market. In some cases some properties could be vacant for a year or more.

Sales Comparison Approach? Are there shell/vacant buildings in your market that have transferred? Compare apples to apples.

The shell sales may lead you to various indicators useful in your Income Capitalization Approach as well. If someone buys a shell building, renovates it, and rents it out, you have an idea of a rental income on a "stabilized" basis. You could appraise the property "as-stabilized" and then back out certain costs in getting to that point: renovations costs, entrepreneurial incentive, lost rent due to downtime, leasing commissions, etc. Therefore, that could give you an indicator on an "as-is" basis. Good cap rate extraction (however you are able to do it) is also key to this analysis. If direct cap rate extraction from sales is not possible, interview every broker in town... find out what their investors are telling them. In a down market, cap rates are usually up unless you have a drastic reduction in achieved rents. Renovation costs may require hiring a contractor to give an estimate... that's the best proof for that cost!

Cost approach, if all else fails, may be the only remaining indicator. Having never done an appraisal for a commercial/industrial tax appeal, I don't know if having the cost approach as the only value indicator would result in a successful tax appeal.

Hope this helps!

 

[Howard Klahr]

Rent loss/absorption analysis - value "as stabilized" then value "as is"

 

[Sheikh Yerbouti]

Check your state's tax law. Some jurisdictions don't recognize loss of value caused by excessive vacancy, except sometimes for new multi-tenant buildings that are in the lease-up period.

 

[Rhombar]

Was doing large industrial. Found very few in the state that sold for more than $5.00/sf and most were still vacant. Seemed to depend on local population. In subject County with 40,000 pop., did several market studies over ten years. Each time there was size/price break point over which the market was unwilling to pay over $5.00/sf, with smaller properties bringing $8.00-$30.00/sf. But, each time the break point was different. Moved from about 8,000 sf to 25,000 sf as economy improved.

Point is there's a limit to what the market will absorb, over which there is effectively no market ($5.00/sf). You need to find out what it is about your subject that puts it out of the market (vacant), find similar comps and make that demonstration.