Michael S
Senior Member
- Joined
- Mar 18, 2009
- Professional Status
- Certified General Appraiser
- State
- New Mexico
I just receive an assignment to appraise a retail store and gun range in a small city in New Mexico near a military base. It’s for a local bank that is a new client and apparently the loan is in distress after just a couple of years. The property started out as a bank branch and was last listed for $350,000 (about $50/SF). The buyer purchased it a couple of years ago (presumably at or below $350k) and renovated the bank branch into a retail gun store and built a new concrete tilt-up firing range behind it.
In taking to the bank I asked if they had any information on the property since public records are basically nonexistent and they sent me the prior appraisal from 2015 when the renovation/construction was going on. All I can say is wow. This might be the worst appraisal I’ve ever seen.
Sales comparison approach consists of two local sales, a national auto part store and another national retailer. Both single-tenant NNN leased investment sales at sub 7% cap rates. One sale was 10 years old the other was 8 years old and both sold for around $175/SF. No mention of adjustment for time/market condition, no mention of adjustment for leased fee/fee simple (subject is owner occupied with a non-arm’s length lease in place). The appraiser included secondary sales of gun ranges which include a new Gander Mountain in the Dallas-Fort Worth area at $250/SF (presumably another long-term single tenant NNN investment sale), a gun store in the Phoenix area with no gun range at $70/SF, and one decent comp in Utah that included a gun range but the source was CoStar and the appraiser simply estimated the purchase price based on the loan amount (assuming an 85% LTV) as CoStar hadn’t confirmed it. Oh, and CoStar mentioned that it included the business value but no allocation of course.
Then followed a LoopNet printout of a gun store sale in TN with a gun range at about $70/SF and a listing of a gun range in NY for $95/SF. He then concludes with about a paragraph of “analysis” that the value is around $135/SF plus fixed equipment and inventory adding another $600,000. No grid or other adjustments of any kind, just a range from $100 to $170/SF where he concluded $125/SF for the original building and $140/SF for the gun range, or about $2 million. This despite the total construction cost being estimated at about $1.5 million.
The income approach was even worse. His revenue was based on the owner’s estimate and includes rent for each portion at $12-14/SF with no rent comps and no other data. On top of that he adds CAM revenue of $16/SF plus property tax and property income and finally equipment lease income. All told he comes up with revenue of almost a half million which equates to about $30/SF. A shadow-anchored retail strip in front of a Walmart in town just sold and the rents for 1,200-3,000 SF in-line retail spaces were only $15-20/SF which is probably about the top of the market and yet somehow a retail store miles outside the city should be expected to generate income of $30/SF according to this appraiser.
Throughout the report the appraiser includes “inventory” i.e. the $500,000 in guns sitting inside the building as if those are in any way shape or form relevant to the real estate. I saw no mention of going concern even though it appears the appraiser decided to appraise the going concern instead of the fee simple real estate as requested by the client. I think I may need to send this report into the state as it is just terrible. Here’s a last little gem:
Market value is defined by the USPAP as follows:
“Market Value is the price which the property will bring when it is offered for sale by one who desires, but is not obliged to sell, and is bought by one who is under no necessity of buying it, taking into consideration all of the uses to which it is reasonably adaptable and for which it either is or in all reasonable probability will become available within the reasonable future.” City of Austin v. Cannizzo, 267 S.W.2d 808, 815 (Tex. 1964).
In taking to the bank I asked if they had any information on the property since public records are basically nonexistent and they sent me the prior appraisal from 2015 when the renovation/construction was going on. All I can say is wow. This might be the worst appraisal I’ve ever seen.
Sales comparison approach consists of two local sales, a national auto part store and another national retailer. Both single-tenant NNN leased investment sales at sub 7% cap rates. One sale was 10 years old the other was 8 years old and both sold for around $175/SF. No mention of adjustment for time/market condition, no mention of adjustment for leased fee/fee simple (subject is owner occupied with a non-arm’s length lease in place). The appraiser included secondary sales of gun ranges which include a new Gander Mountain in the Dallas-Fort Worth area at $250/SF (presumably another long-term single tenant NNN investment sale), a gun store in the Phoenix area with no gun range at $70/SF, and one decent comp in Utah that included a gun range but the source was CoStar and the appraiser simply estimated the purchase price based on the loan amount (assuming an 85% LTV) as CoStar hadn’t confirmed it. Oh, and CoStar mentioned that it included the business value but no allocation of course.
Then followed a LoopNet printout of a gun store sale in TN with a gun range at about $70/SF and a listing of a gun range in NY for $95/SF. He then concludes with about a paragraph of “analysis” that the value is around $135/SF plus fixed equipment and inventory adding another $600,000. No grid or other adjustments of any kind, just a range from $100 to $170/SF where he concluded $125/SF for the original building and $140/SF for the gun range, or about $2 million. This despite the total construction cost being estimated at about $1.5 million.
The income approach was even worse. His revenue was based on the owner’s estimate and includes rent for each portion at $12-14/SF with no rent comps and no other data. On top of that he adds CAM revenue of $16/SF plus property tax and property income and finally equipment lease income. All told he comes up with revenue of almost a half million which equates to about $30/SF. A shadow-anchored retail strip in front of a Walmart in town just sold and the rents for 1,200-3,000 SF in-line retail spaces were only $15-20/SF which is probably about the top of the market and yet somehow a retail store miles outside the city should be expected to generate income of $30/SF according to this appraiser.
Throughout the report the appraiser includes “inventory” i.e. the $500,000 in guns sitting inside the building as if those are in any way shape or form relevant to the real estate. I saw no mention of going concern even though it appears the appraiser decided to appraise the going concern instead of the fee simple real estate as requested by the client. I think I may need to send this report into the state as it is just terrible. Here’s a last little gem:
Market value is defined by the USPAP as follows:
“Market Value is the price which the property will bring when it is offered for sale by one who desires, but is not obliged to sell, and is bought by one who is under no necessity of buying it, taking into consideration all of the uses to which it is reasonably adaptable and for which it either is or in all reasonable probability will become available within the reasonable future.” City of Austin v. Cannizzo, 267 S.W.2d 808, 815 (Tex. 1964).
