The Shared Office

One of the biggest trends in office space marketing is the co-working or shared space concept, offering a flexible menu of space and services in an established office environment. These spaces are typically leased in bulk, generally to a marketer who designs and builds it out. The goal is to offer a professional setting tailored to meet the exact desires of their targeted clientele.

While pricing for the selected space and services is often a bargain for a small tenant with limited needs, it is higher in the aggregate for the bulk space if the concept achieves good occupancy.

Achieving good occupancy is a business related effort: smart design, management, and marketing skills must be leveraged in order to create margin for the shared space operator.

But is that higher pricing reflective of the real estate? No!

The answer will remain “no” until the shared space design is indelibly woven into purpose built construction and this trend becomes an established niche in office development and management. This means we use the bulk lease rates to value these properties for now, but stay tuned – this trend is growing fast!

Posted in Market Trends

Timing is Everything

As someone who has been involved in many appeal hearings, I’ve witnessed firsthand how much valuable time is lost because of timing. What do I mean by time lost because of timing? Read on.

The issue (which shouldn’t even be one) is incorrect citing of published information used in support of an overall cap rate, appropriate rent, vacancy rate, or other market indicator. This published information, typically in the form of surveys, is often cited in valuations as of a certain date.

However, for assessment purposes, valuation is assumed to be “as of” the tax date. Thus, intrinsic in that assumption is use of data available as of that date. If quarterly surveys are cited, they should only be those released (available) as of the specific tax date. For example, if the tax date is January 1, 2018… publications from 4th quarter 2017 (and earlier) are appropriate for comparison; publications from 1st quarter 2018 do not apply.

Hindsight is great, but use of surveys released a month or two after the tax date leads to confusion and wasted time in the hearing room. Take a moment to review the published date on the cited supporting data; the only relevant surveys are those that were available as of the specific tax date.

Valuation is as of a distinct point in time, not after data arrival. In a fast moving market, this makes a difference.

Posted in Case Studies

Delivering Equity Takes Diligence

The appeals process reminds us to focus on equity for the taxpayer. Though frivolous appeals happen all too often, appeals certainly can be justified. Since my role in this industry is to provide guidance in income based valuation, a policy I find useful is to make certain the all important market rental rates agree with three principles:

Submarket Specific Rent
The rent estimate must relate exactly to the subject location, type, and subtype. For example, the rent for a medical office on a hospital campus may not relate well to rents applicable for off-campus medical properties.

Aging of Comparable Contracts
Consider the age of the contracts provided as comparables. When were the comparable leases executed in relation to the assessment date of value? If very different, is there a supportable basis for adjustment?

Achievable Rent Versus Asking Rent
Comparable aging (see above) can sure help here, but if not, definitely research achievable rents. This takes diligence: talk to active brokers in your area, particularly those local brokers knowledgable in the specific property type you are working with. Give them examples of similar buildings and ask what is achievable in the local market.

Again, while there are those unfortunate tax appeals which rob jurisdictional time and expose appellants to only contingent expense, as everyone knows, some appeals are wholly justified.

Equity isn’t always easy.

Posted in Real Life

Pickup Ruck

The title of this post does not have a typo. The word “ruck” has several meanings, most having to do with typical gatherings of people or things. In rugby, it refers to a scramble for the ball on the ground. In the assessment world, it accurately describes the last minute hustle to find supportive data for an appeal hearing.

Before you head into the hearing, pick up the phone. Call the two brokers in your market; the two most active brokers in the type of property under appeal.

For this example, we’ll assume an office property is under appeal. Here are helpful questions to ask the brokers:

Are there any recent sales, or pending sales, you are able to disclose?

Are there any recent leases, or pending leases, you can relate?

Have typical office expenses recently increased or decreased?

Has anything happened recently in the local market (or nationally) to impact supply and demand?

Chances are you’ve already done your homework well, but it never hurts to demonstrate the most up-to-date market knowledge. This may elevate you from the ruck.

Posted in Real Life

Resorting to Less

If you travel a bit, you’re likely familiar with an annoying trend at full service hotels, and even at some limited service hotels. You are quoted a rate online or over the phone, and you check in, assuming you will pay that quoted rate plus a healthy local lodging and sales tax.

But in the past few years, a number of seemingly mundane brands & properties have added the “resort fee” concept to hotel billing. These fees commonly range from the high teens to just under $40, and purport to cover extra amenities to enhance your travel experience. A fee all too often disclosed only at checkout.

For the assessment professional, the question is whether to recognize these fees in income-based real property valuation. Are the resort-related services and amenities part of the the real estate, or do they arise from the business enterprise?

The answer is usually unclear. If you take the time to research what elements are included in these fees, often you’ll find the pool and fitness areas are mentioned, along with some inscrutable references to concierge-like services.

While I usually counsel conservatism in lodging income analysis, these fees strike me as fair game for inclusion for real property valuation purposes, until they are clarified. Ask questions, require answers… don’t resort to less than full disclosure.

Posted in Market Trends

Fibber Optic

Or said another way: The viewpoint of one who doesn’t speak the truth.

Convenient Omission
“We bought it last year for $1 Million” while failing to mention it was just a building shell at the time.

Convenient Commission
“I reported the price less 6% commission, because that is what the seller received.”

Creative Characterization
“My building is replete with inefficiencies and obsolescence” even though it was built to exacting state-of-the-art standards 5 years ago.

Expedient Position
“I happen to know it was an out-of-town buyer who paid over market value because the taxes were a bargain in her experience.”

And the all time favorite…

Admitted Altruism
“Candidly, I paid much more than market to help the seller out of a bad position.”

Their facts are anecdotal, always.

Posted in Real Life

Dixie Exposes Expense Mixing

Dixie Phair (Any Municipality County’s Commercial Real Property Analyst) and Luke Warm (ownership tax representative) are mixing it up (having a discussion)…

Dixie: This is a well located property.

Luke: Well, it is and it isn’t.

Dixie: Why do you say that? The traffic count there is the highest in Any Municipality County, and the site has three drive cuts.

Luke: One cut is sort of smallish, and sometimes too much traffic is counterproductive. My client’s customers are busy people, and would avoid the area if they could.

Dixie: But actual store sale figures you provide prove that at least some of them keep coming back.

Luke: Doesn’t mean it’s not annoying to them. They have to buy stuff somewhere.

Dixie: So you are alleging 50% obsolescence to site and improvements for traffic congestion?

Luke: Should probably be more, but we’ll settle for 50% I guess.

Dixie: The new power center is just half a block away, and 90% of the outlots in that immediate area have national credit rated tenants. Do they suffer this same obsolescence from high traffic?

Luke: My client’s product sells itself. In fact, they probably could sell out with only an online presence.

Dixie: So why doesn’t he simply market online, then?

Luke: Expenses. He needs the expense of a bricks & mortar facility to offset his high income from sales.

Dixie: Great! What they claim to the IRS is their business, equitable real estate taxes included. But we will assign a triple net market rent to the real estate for assessment valuation. Those neighbors needing the exposure are our rent comparables!

Posted in The Adventures of Dixie Phair

Your New Best Friend

EBITDA is your new best friend!

It’s all there in front of you, everything you asked for: three years of operating results, account detail sheets, and audit certifications, received 10 minutes into the appeal hearing (and 10 months after you requested this material).

Recording of proceedings has begun, and official decisions will be made based on the most lucid presentation of these data to the hearing examiner. No problem, you are an Assessment Professional – capable of miracles!

The reams of evidence are intended to obfuscate your case – but a pretty reliable shortcut exists. Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) is usually stated near the end of an operating statement. This can greatly simplify delivery of your next miracle. Continue reading

Posted in Case Studies

Fall Off the Wagon

When comparing the new Explosion SUV to the more elegant but similarly sized Extravaganza, you start to appreciate the nuance of subtlety.

So much so that you end up buying a barebones compact devoid of rare earth and rare animal components, risking almost certain derision from upwardly aspiring neighbors.

But you don’t care, having now tasted true freedom from peer pressure and stuff acquisition syndrome (SAS). Continue reading

Posted in Real Life

Picking Data

Check out the following example, where the stated information was citied as a basis for market valuation:

2013 - Acquisition price of subject only 23 months earlier.

2014 - Average local market rent of same type property less prior year subject actual expense, capped at average national survey “B” results for same type property.

2015 – Actual subject market rent less average expense for property type, cap rate based on a recent local sale of same type property.

2016 – Average local market rent of same type property less prior year subject actual expense, capped at average national survey “C” results for same type property.

Selective data sourcing can tempting to both Appellants and Assessment Professionals, but such inconsistency rarely leads to equity.

Best to avoid it, and call it out when you see it!

Posted in Real Life