A couple of comps and you’re golden. Seems simple enough, doesn’t it? I mean, how difficult can the commercial real estate assessment process be if all that’s required is to track down a few comps that are similar to the subject property.
Then after you find those comps, one or two may require some basic adjustments… easy right? Since the comparables are nearly identical to the subject, shouldn’t adjusting be straightforward?
Well, before you make a broad judgment regarding the process based on “all it takes is a couple of comps” consider the following case study:
16,000 SF general office building with five tenant suites, located at the outer edge of the local commercial area. Leasing has been tough, with three tenant spaces still available two years after development. Following are the “comps” from the local market.
- 25 year old former drugstore of 9,500 SF, in good condition with drive-up.
- Dental office of 850 SF in former dwelling, detached garage included.
- 80,000 SF discount shadow anchor, 40 years old with nine acres of weedy parking lot.
- New 14,500 SF drugstore subject to a 25-year triple net lease to credit national drug chain.
- Two sales of historic multiple story town square buildings, both 30 ft wide, one @ 9,000 SF and the other @ 11,000 SF.
- Modular used car sales building of 1,100 SF on a very small parcel (majority of car sales lot was sold separately).
- 12,000 SF, one story funeral home building, 25 years old, with vehicle barn at rear.
- 40 year old former fast food, 4,500 SF with three drive cuts, signage still present.
- Food anchored, 15 year old 82,000 SF shopping center with undeveloped outlot.
- 100 year old church building, street parking only, last repurpose was a restaurant.
This post illustrates the reality and complexity of the commercial assessment process. Finding properties that are truly comparable can be extremely challenging. Comps are not everywhere, even in dynamic markets. Without solid support, adjustments to comparables are not reliable. In addition to physical characteristics (building size & condition, acreage) many other factors need to be considered, including but not limited to conditions of the sale, timing, location (specific/general), and more.
That’s how difficult it really is.