Let Dead Space Rest in Peace!

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Depending on the age and size of the downtown district, buildings over 100 years old probably exist in your town.  And whether you have blocks of these buildings, or just a few, one thing they may have in common is dead space.

In the late 1800s and early 1900s, these properties served retail and service functions well, with the front area for customers, and the central portion fully used for inventory. The rear of these buildings originally served as loading areas and vehicle storage, which of course were horse drawn wagons that eventually gave way to trucks. Today, renovation/restoration costs range from expensive to cost prohibitive. Municipal & zoning codes, access, power, HVAC, plumbing, and historic preservation issues further complicate matters.

These buildings also no longer meet current standards of design and scale. They are typically 20 to 30 feet wide at the front, and extend proportionately an astounding length to a rear alley; as much as 200 to 300 feet in length. Compounding their physical disproportion, they are usually two to four story in design, with the upper areas often in disrepair.

It’s no surprise that these buildings present a real problem in market value estimation. Take a good look up and down the street to determine exactly what drives demand. Are these buildings sitting empty or being used? Are they entirely occupied, or just the first floor with the upper levels vacant? And if the first floor is rented, try and judge how much of that first floor space is actually being used by the street level tenant.

The following chart compares sales of three old downtown buildings.  In this hypothetical example, comparison “A” results in the least variation in price/SF (from $80.00 to $112.50) as a result of using the smallest, most marketable portion of these old buildings:

Sale 1 Sale 2 Sale 3
Floor Plate Dimensions 20’ x 180’ 25’ x 200’ 30’ x 260’
# of Stories 2 3 4
Frontage-to-Length Ratio 1 to 9 1 to 8 1 to 8.7
Sale Price $225,000 $200,000 $275,000
A. Front 100’ Area of 1st Floor (SF) 2,000 2,500 3,000
Price per SF Front 100’ Area of 1st Floor $112.50 $80.00 $91.67
B. Floor Plate 1st Floor Area (SF) 3,600 5,000 7,800
Price Per SF 1st Floor Area $62.50 $40.00 $35.26
C. Building Area Useable (SF) 7,200 10,000 23,400
Price per SF Useable Area $31.25 $20.00 $11.75
D. Total Building Area (SF) 7,200 15,000 31,200
Price per SF of Total Building $31.25 $13.33 $8.81

If market sale prices appear clumped together regardless of overall property size, it could be that access and condition relegate the rear space and upper floors to minimal value contribution.