Unblock the Road

The road to equity often includes an appeal hearing. Similar to molten lava flowing over a road, then cooling and completely blocking the way, hearings often become heated then blocked by detail.

Follow these easy steps (taken from a successful case study) to keep things simple and keep things moving. Remember the goal: clear the road to make the Hearing Officer’s path easier.

First, use the appellant’s income & expense workup as the basis for rebuttal. Working with a single format speeds understanding.

Next, highlight your changes to appellant’s workup and clearly show the corrected valuation result.

Finally, concisely recap and restate your valuation.

Continue reading

Posted in Case Studies


I joined a stock club in the late 80s, and as a novice investor asked the group a question… What happens when the Dow Jones Industrial Average exceeds 10,000? Those present thought my question was silly, and they answered “impossible”.

At about the same time, when asked to quote an appraisal price for a 40,000 acre integrated farming operation, I replied $12,000. That same answer (impossible!) was blurted out by another appraiser in the room.

Well, the Dow Jones is currently in the stratosphere and I got that appraisal job, but most of the time I’m right there along with the naysayers. I did not appreciate the extent of the financial meltdown in 2007, but finally realized what a long slog recovery was going to be by about 2010.

So it’s a surprise to me that in 2017 we see investment grade cap rates applied to many “just above average” properties in secondary markets, and recently leased to national and regional tenants. Too much money chasing mediocre deals!

The growing bubble is leased-fee driven and is anything but impossible.

Posted in Real Life

Dixie’s Historic Value Dilemma

With 5 years experience as Commercial Real Property Analyst for Any Municipality County, Dixie Phair often helps the valuation department with new or rehabilitated income properties. They have brought her a doozie.

Here are the facts:

  • The building: a downtown historic structure completely and beautifully rehabbed to 1st floor retail (leased) and 2nd floor restaurant (vacant).
  • The neighborhood is nearly fully developed, with no offsite parking immediately available for the potential restaurant. In fact, parking is scant for the existing retail. The historic flavor overrode typical parking requirements for approval.
  • The project was finished just prior to reassessment.

Here’s the dilemma: How to now capture the improvement of the property yet measure inherent obsolescence?

Dixie’s solution:

  • Calculate the additional site area needed to accommodate required parking (including ingress/egress) per city code, and the probable value of that site plus needed paving, striping and fencing. This is functional obsolescence attributable to insufficient parking.
  • Since Dixie has benefit of IncomeWorks, she also was able to quickly evaluate the rehabbed building and set the model to auto-fill and complete the Discounted Cash Flow (DCF) analysis.
  • Dixie entered the parking site acquisition estimate, along with the all the costs of paving, striping, fencing, and more. She also entered a sufficient time span and the additional costs involved in leasing the restaurant area.

The IncomeWorks DCF instantly laid it all out. The result was printable support showing the logic, math and professionalism employed by Any Municipality County to achieve an equitable assessment of this property!

Posted in The Adventures of Dixie Phair

Here Today Gone Tomorrow

It’s my job to remind you how to regard “owner occupied” properties for assessment valuation purposes:

Treat owner occupied properties the same as tenant occupied properties!

Owner occupied facilities are no different than rentals – owners move on too!

The fact a property happens to be owner occupied is not relevant for valuation purposes because it could easily be vacant tomorrow, after being purchased by an investor and rented the next day.

Treat owner occupied properties the same as other income properties occupied by tenants, even though your appellant will insist that their property is unique, and therefore not subject to typical income valuation principles.

The entire premise of income valuation is that almost all properties have an inherent market lease rate mated with an expense structure, tied to property type and local market customs. The local customs inform us as to rental and vacancy rates, as well as to who is responsible for which expenses.

So no matter how a property is operated, valuation of that property can’t escape the local market forces that define it!

Posted in Real Life

Cat Scratch Fervor, Part 2

Part 1 summarized that demand for new apartment complexes has been met regarding the upscale multifamily market. The overdevelopment of that sector can be pretty clearly seen and the consequences to occupancy/rental rates are predictable except… if you are in Kansas City, or Columbus, or Cupertino.

Kansas City, MO: A few years ago, sleepy Kansas City was used as a test lab for the first massive installation of Google Fiber. Suddenly, many noticed that climate, housing affordability, and healthcare were excellent. This area has been booming ever since, in the suburbs and downtown. Many downtown developments were adaptive reuses of small floor plate office buildings that had fallen largely vacant. Now KC has a vibrant urban core, and announced plans for free Wi-Fi in a 50 block area.

Columbus, OH: Columbus is ranked tops in proportion of new rentals and speed of lease up among all multifamily markets in the country. Jobs growth, a well regarded major university, and a latent supply pipeline combined to spur significant apartment development in this formerly staid midwest market. It is notable that Columbus (along with Kansas City) competed as finalists in the U.S. Department of Transportation’s “Smart City Challenge”. Columbus won the prize in summer 2016.

Cupertino, CA: Apple is completing its new 2.8 million square foot campus in Cupertino, but this really is about all of Santa Clara County, where Apple employs over 40,000 people and is expected to add tens of thousands more in the next few years. Cupertino, Sunnyvale, and San Jose can’t build apartments fast enough to keep up with demand. The only problem: the Santa Clara County multifamily industry is not building affordable properties (apartments for folks who are not software engineers). So far that is not getting done.

Posted in Market Trends

Cat Scratch Fervor, Part 1

They continue to claw the dirt even in the face of what is apparent to many. So, I’ll say it again, as clear as I can:

Demand for umpteen new apartment complexes per submarket is pretty close to darn near almost kinda met.

Supply has met demand with rent increases flattening in the hottest markets across the U.S. such as Seattle, Portland, Austin, DC, Atlanta, Denver, and San Jose.

But the big yellow (and green and red) site graders continue to scratch out new locations for the multifamily industry’s long awaited and perfectly conceived luxury lifestyle concept. Oh… I forgot to add that the singular best concept is (of course) both sustainable and somehow collaborative, because it just wouldn’t be the 2000-teens otherwise.

This is about the upscale end of the multifamily sector, not the more affordable rental units which are expected to remain in demand. It isn’t often you can so clearly see a market sector overdevelop and predict the consequences to occupancy and rental rates.

Except if you are in Kansas City, or Columbus, or Cupertino. These markets are pretty interesting and it is no surprise tech is a big part of it. Part 2 will discuss those three markets in more detail.

Posted in Market Trends

Meaning & Perspective

When are cap rates most meaningful? The answer (always!) is in development of the income approach to value. But cap rates can also add perspective to the sale comparison process.

Consider how truly different properties commonly called “shopping centers” are. Shopping centers can be two or three tenant strip buildings, food anchored centers, power centers (all anchors), and integrated retail properties incorporating freestanding buildings with attached food and entertainment venues.

In medium-to-small markets, and in all markets where sales activity has been constricted, comparison of shopping center sales on a per unit basis can be challenging. These rarely relate well in terms of overall tenant size ratios, and are often markedly different in tenant type and quality; relegating selection of a sale price per square foot from a decent market sample unlikely. Continue reading

Posted in Case Studies

Missed the Mark

dart board

A recent (actual) appeal effort achieved its requested reduction, heralding success for the appellant representative. But was it half an effort? Close to a victory, but just off the mark?

The question dealt with value per SF of building in a rarified market, in this case water frontage. The entire market is readily identifiable in a physical sense, so minimal effort was required to array the existing assessments of those properties and strike an average. The evidence was irrefutable, and the appeal reduction sailed through the system without friction. An example of equity for all to embrace… or not?

The chart below presents the data geographically, listing the properties in the market on a per-street basis, and then further grouped into North and South submarkets: Continue reading

Posted in Market Trends

Dixie & Assisted Living

Valuation of an Independent/Assisted Living facility is as complicated for Dixie Phair as it is for the rest of us. Experienced in her job as Commercial Real Property Analyst for Any Municipality County, Dixie knows these are very specialized properties.

Income (and offsetting expense) from ancillary and personal services like craft classes, meals, and more, are not appropriate for inclusion in an income based analysis. To illustrate, the following is a list of accounts (simplified) from an Independent Living facility presented in an actual appeal:

Revenue Ok to Include?
First Person Rent $00 yes
Second Person Rent $00 yes
Garage Rent $00 yes
Additional Meals $00 no
Guest Meals $00 no
Beauty/Barber $00 no

Continue reading

Posted in The Adventures of Dixie Phair

Big Data, Big Deal?

Soon, it is said, big data will perform the numerous medical, financial, and real estate advisory functions better than existent providers. That data collection will be really huge and completely pervasive; details will be collected and organized into informative output accessible to everyone.

The underlying concept captures data from all sources automatically, which we all know to be error-prone and lacking follow through. Let’s imagine how the following office lease information from two sources (on the same transaction) could enhance understanding of your local market: Continue reading

Posted in Real Life