What Approaches Do You Apply to a Small Strip Mall?

[CANative]

For a small strip center you can almost do the IA on your fingers. It's what made doing this so much easier than a complex residential assignment. Especially in smaller areas where sales are far and few between. The report would feel half-naked without an IA. IMO.

 

[Terrel L. Shields]

I prefer doing my own direct capitalization method and the leases are NN, Typical local SF rents run $8-12/SF per year. That's not much. Taxes are low but still at $12, you'd be talking an income of $144,000 and I am betting the rents are closer to $8 yet.... that's $96,000. I'd hate to pay much above 10x GI.

And with Covid-19 tenants uses being restricted

This is in Oklahoma. I went to Tulsa today and in 2 stores. I was the only person in either one wearing a mask and both were fairly crowded. They are pretty open for the moment. Tulsa had the earliest case and has been hit harder than any other county in the state, so it surprised me that more people were not wearing masks. Many of the smaller counties have had no cases or only a case or two. They are ID'ing about 400 a day with 2 to 4 deaths per day.

 

[Michael S]

Direct cap income approach and sales comparison. Cost would probably not be included. DCF could certainly be applicable but I don't know how many buyers of $1 million commercial properties are using DCF - almost certainly not Argus to model it. I'm guessing most of the leases are only 3-5 years, maybe even month to month. I would probably spend a fair amount of time analyzing the strength of each individual tenant and how likely they are to continue paying rent. Hair salon will probably survive, a restaurant, probably not. At that point you're looking at a non-stabilized property and you would need to discount it for lease-up - which could take quite a while and probably with lower rents. The value is definitely going to take a huge hit over what it was 6 months ago. 6 months from now it could completely recover and the only different might be a higher cap rate. But probably not.

 

[Terrel L. Shields]

Coffee shop, restaurant, clothing store, and a counseling service- don't remember the others, and the building faces away from the road. Parking "behind" the building is the front. Awkward at best. I am likely to use the CA ...3 approaches. The SA will be the weak one due to lack of sales in the county.

 

[Terrel L. Shields]

The owner now tells me I don't need the income and expenses

 

[glenn walker]

The owner now tells me I don't need the income and expenses

because there is no income : )

 

[Scott.A]

Absolutely an income approach should have been developed then and should be developed today. If 4.8% doesn't seem kosher, what are the cap rates of similar properties with similar expenses? If you've got comparable sales with income info, run it with a 20% expense ratio and see if the cap rates are similar.

 

[Alamo Cowboy]

I'm not in the business anymore. However, I would have recreated a financial income statement based upon current local data and vacancy rates. I would also make this a hypothetical/extraordinary assumption in my narrative. From the data findings I would use this as a basis to make a discount (negative) adjustment in the sales comparison approach to value if my comps were pre-covid. For this assignment I would only use an Argus type product for letting me know what I may be missing and an aide. As mentioned earlier I would spend most of my time of the income approach.

 

[Tim The Enchanter]

If these things start going vacant en masse, you might need to put extra thought into the H&BU.

He said, from the cheap seats.

 

[Alamo Cowboy]

Guys/Girls,

Don't make an assignment more difficult than it is. Just be reasonable and explain what you did. Make your decisions based on the typical data sources you currently use and your feel for the current commercial market. IMHO, I can't tell you how much your professional opinion means to marketplace. Don't worry about buyer, seller, client or lender.