Korpacz Realty Advisors

Transcription

ANNUAL CONFERENCE
VIRGINIA ASSOCIATION OF
ASSESSING OFFICERS
Real Estate Market Overview
and
Chain Drug Store Valuation Methodologies
October 11, 2012
VAAO PRESENTATIONS
Part I
State of the U.S. Real Estate Economy…Fourth Quarter 2012
Presented
October 11, 2012
By
Peter F. Korpacz, MAI, CRE, FRICS
President
STATE OF THE U.S. REAL ESTATE
ECONOMY…FOURTH QUARTER 2012
Presented To
Virginia Association of Assessing Officers
October 11, 2012
President
Contents
Conclusions
Economic Environment
Property Sectors
All Properties
Office
Retail
Industrial
Apartment
Hotel
Closing Remarks
Addenda
Conclusions
• Economy
– improving but vulnerable
• Leasing Markets
– slow improvement
• Transaction Markets
– prices stabilizing
• November elections and the fiscal cliff hold the
economy and real estate hostage
Economic Environment
Economic headwinds
• Recession throughout Europe
 UK, Spain, Italy, Netherlands, Denmark, Ireland,
Greece, Czech Republic, Portugal, and Solvania
• GDP growth moderates in U.S. to 1.3% in 2Q12
• Weak job growth
• Declining export orders
• The fiscal cliff – possible huge tax increase and
budget expenditure cuts
Economic good news
• Retail sales and durable goods order continue to be
bright spots
• Job growth is at least positive
• The good news “housing recovery” headlines may
be real
GDP continues to decline in 2Q12…
Annual Percentage Change in GDP
1980 – 2Q12
8.0
7/1990-3/1991
12/2007-6/2009
Percentage Change
6.0
4.0
2.0
0.0
3/2001-11/2001
-2.0
7/1981-11/1982
-4.0
Shaded areas reflect U.S. recession dates.
2Q12
2010
2007
2004
2001
1998
1995
1992
1989
1986
1983
1980
Source: Bureau of Economic Analysis
Job growth continues sluggish trend
Average Change in Nonfarm Employment
1980 — September 2012*
5,000
3,500
Change in Thousands
12/2007-6/2009
2,000
500
-1,000
-2,500
7/1990-3/1991
7/1981-11/1982
-4,000
3/2001-11/2001
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Jan 12
Feb 12
Mar 12
Apr 12
May 12
Jun 12
Jul 12
Aug 12
Sep 12
-5,500
September’s number is preliminary .
*Annual figures are based on December to December figures, while monthly figures are based on the difference from the prior month .
Source: Bureau of Labor Statistics
Unemployment claims…slowly declining
Weekly Unemployment Claims
1990 – September 22, 2012*
700,000
12/2007-6/2009
650,000
7/1990-3/1991
3/2001-11/2001
600,000
550,000
500,000
450,000
400,000
350,000
300,000
Note: Figure for 9/22/2012 is seasonally adjusted, advanced data.
Source: U.S. Department of Labor
9/22/2012
7/30/2011
2/20/2010
9/13/2008
4/7/2007
10/29/2005
5/22/2004
12/14/2002
7/7/2001
1/29/2000
8/22/1998
3/15/1997
10/7/1995
4/30/1994
11/21/1992
6/15/1991
1/6/1990
250,000
Unemployment rate flattens
Average Annual Unemployment Rate
U-3 v. U-6 Series
1994 – September 2012*
19.5
12/2007-6/2009
17.5
3/2001-11/2001
15.5
13.5
U-6 Series
11.5
9.5
7.5
5.5
* Monthly figures are actual rates.
Sep-12
Aug-12
Jul-12
Jun-12
May-12
Apr-12
Mar-12
Feb-12
Jan-12
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
3.5
U-3 Series
Worker productivity erratic
10.0%
12/2007-6/2009
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
3/2001-11/2001
-4.0%
Retail sales growth a bright spot
Retail Sales Percentage Change
Over Prior Year
12.25%
Recession
12/2007-6/2009
9.75%
7.25%
4.75%
2.25%
-0.25%
-2.75%
Recession
3/2001-11/2001
-5.25%
-7.75%
-10.25%
Note: Annual percentage change refers to change in December over prior December; monthly percentage change refers to change over same month in prior year
Source: Census Bureau
Aug-12
Jul-12
Jun-12
May-12
Apr-12
Mar-12
Feb-12
Jan-12
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
-12.75%
Business spending slows
Annual Percent Change in Business Spending
1988 –2Q12
20.0%
12/2007-6/2009
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
7/1990 -3/1991
-15.0%
3/2001-11/2001
2Q12
1Q12
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
-20.0%
Source: Bureau of Economic Analysis
Corporate earnings expected to fall
Durable goods orders hits a snag…
Durable Goods Orders
February 1992 – August 2012*
In Millions
$250,000.00
$240,000.00
$230,000.00
$220,000.00
$210,000.00
$200,000.00
$190,000.00
$180,000.00
$170,000.00
$160,000.00
$150,000.00
$140,000.00
$130,000.00
$120,000.00
$110,000.00
In
Aug-12
12/2007-6/2009
Source: Census Bureau
*Note: August figure is an advanced figure.
May-12
Aug-11
Nov-10
Feb-10
May-09
Aug-08
Nov-07
Feb-07
May-06
Aug-05
Nov-04
Feb-04
May-03
Aug-02
Nov-01
Feb-01
May-00
Aug-99
Nov-98
Feb-98
May-97
Aug-96
Nov-95
Feb-95
May-94
Aug-93
Nov-92
Feb-92
3/2001-11/2001
Home prices rebounding?
Fiscal cliff ahead…
Property Sectors
Cap rate compression flattens…
Average Cap Rates by Property Sector
10.5%
10.0%
Industrial
Sub - Office
9.5%
9.0%
8.5%
Retail
8.0%
7.5%
7.0%
6.5%
6.0%
Apartment
5.5%
CBD - Office
5.0%
4.5%
'01
'02
'03
'04
'05
'06
'07
'08
'09
Based on independent reports of properties and portfolios $2.5 million and greater.
Source: Real Capital Analytics, Inc. as of September 26, 2012
Source: Real Capital Analytics, Inc.
'10
'11
'12
Volume also flattens…
Monthly Transactions
billions
$80
$ Volume
$60
$40
$20
$0
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
Year-Over-Year % Change
200%
100%
0%
-100%
'01
'02
'03
'04
'05
'06
'07
'08
'09
Based on independent reports of properties and portfolios $2.5 million and greater.
Source: Real Capital Analytics, Inc. as of September 26, 2012
'10
'11
'12
Volume summary table
First Half of 2012 vs First Half of 2011
Property Type
Dollars
in
Billions
Office
$29.2
7%
1,200
24%
Industrial
$14.2
-26%
1,619
-35%
Retail
$24.4
5%
1,914
-1%
Apartment
$28.6
23%
1,986
24%
Hotel
$ 7.5
-17%
413
-1%
Development Site
$ 4.9
67%
458
96%
Grand Total
$108.8
4%
7,590
-1%
Year-OverYear
Change
Number
of
Properties
Year-OverYear
Change
Source: Real Capital Analytics, Inc. Mid-Year Review 2012
Average pricing summary table
First Half of 2012 vs First Half of 2011
Property Type
Dollars Per
Unit or Sq. Ft.
%
Cap
Rate
Basis Point
Change
Office
$245
12%
7.1%
-30
Industrial
$98
7%
7.8%
-7
Retail
$343
8%
7.3%
-26
Apartment
$139,561
1%
6.2%
-16
Hotel
$120,069
4%
7.8%
11
Grand Total
$46,287
3%
6.9%
-18
Distress update
By Property Type
Property Type
Outstanding
Distress (SM)
% Change
Vs 2Q11
%
Worked Out
RR*
(%)
Office
$43,640
-3%
57%
67%
Apartment
$33,044
14%
59%
70%
Retail
$27,340
-5%
58%
63%
Industrial
$12,474
6%
49%
71%
Hotel
$22,242
-4%
56%
66%
Land
$25,560
-6%
40%
56%
Other
$4,925
3%
40%
71%
$169,225
-6%
55%
67%
ALL
* Recovery rate before costs and fees
Distress update
Property Types
Office leasing markets stabilizing
Completions, Net Absorptions, Vacancy Rate, and Rent Inflation
U.S. Office Markets (2000 – 2017F)
2Q2012 Outlook
Vacancy
18.0%
125,000
14.0%
75,000
10.0%
6.0%
25,000
2.0%
-25,000
-2.0%
-6.0%
-75,000
-10.0%
Rent Inflation
-125,000
Completions
Net Absorption
Vacancy Rate
Source: CBRE Econometric Advisors
Rent Inflation
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
-14.0%
All Office: cap rate & pricing trends
Cap Rates
Price Per Sq. Ft.
Source: Real Capital Analytics, Inc. as of 9/26/2012; based on properties and portfolios $5M and greater
All Office: volume trends
Transaction Volume
Year-Over-Year Change
Office: cap rate & pricing by category
CBD
Suburban
Cap Rate
Price Per Sq. Ft.
Source: Real Capital Analytics, Inc;. August 2012 US Capital Trends® published September 2012; based on properties and portfolios $2.5M and greater
Office: volume by category
CBD
Suburban
Transaction Volume
Office: local market v. national total
Richmond/Norfolk
vs
Office Grand Total
Avg. Cap Rate
11.0%
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'08
'09
'10
'11
'12
Avg. PSF
$350
$300
$250
$200
$150
$100
$50
$'01
'02
'03
'04
'05
'06
'07
Office: local market v. Mid-Atlantic total
Richmond/Norfolk
vs
Mid- Atlantic Total
Avg. Cap Rate
11.0%
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'08
'09
'10
'11
'12
Avg. PSF
$450
$400
$350
$300
$250
$200
$150
$100
$50
$'01
'02
'03
'04
'05
'06
'07
Industrial leasing markets stabilizing
U.S. Industrial Markets (2000 – 2017F)
2Q2012 Outlook
400,000
17.0%
Vacancy
300,000
13.0%
200,000
9.0%
100,000
5.0%
0
1.0%
-100,000
-3.0%
-200,000
-7.0%
Rent Inflation
-300,000
Completions
Absorption
Vacancy
Rent Inflation (%)
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
-11.0%
All Industrial: cap rate & pricing trends
Cap Rates
Price Per Sq. Ft.
All Industrial: volume trends
Transaction Volume
Industrial: cap rate & pricing by category
Flex
Warehouse
Cap Rate
Price Per Sq. Ft.
Industrial: volume trends
Flex
Warehouse
Transaction Volume
Industrial: local market v. national market
Richmond/Norfolk
vs
Industrial Grand Total
Avg. Cap Rate
11.0%
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'08
'09
'10
'11
'12
Avg. PSF
$160
$140
$120
$100
$80
$60
$40
$20
$'01
'02
'03
'04
'05
'06
'07
Industrial: local market v. Mid-Atlantic total
Richmond/Norfolk
vs
Mid- Atlantic Total
Avg. Cap Rate
13.0%
12.0%
11.0%
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'08
'09
'10
'11
'12
Avg. PSF
$160
$140
$120
$100
$80
$60
$40
$20
$'01
'02
'03
'04
'05
'06
'07
Retail leasing markets stabilizing
115,000
U.S. Retail Markets (2000 – 2017F)
2Q2012 Outlook
13.0%
100,000
85,000
10.5%
Vacancy
70,000
8.0%
55,000
5.5%
40,000
3.0%
25,000
0.5%
10,000
-2.0%
-5,000
Rent Inflation
Completions
Net Absorption
Vacancy Rate
Rent Inflation
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
-7.0%
2002
-35,000
2001
-4.5%
2000
-20,000
All Retail: cap rate & pricing trends
Cap Rates
Price Per Sq. Ft.
All Retail: volume trends
Transaction Volume
Retail: cap rate & pricing by category
Mall & Other
Cap Rate
Strip Center
Price Per Sq. Ft.
Retail: volume by category
Mall & Other
Transaction Volume
Strip Center
Retail: local market v. national total
Richmond/Norfolk
vs
Retail Grand Total
Avg. Cap Rate
13.0%
12.0%
11.0%
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'07
'08
'09
'10
'11
'12
Avg. PSF
$500
$400
$300
$200
$100
$'01
'02
'03
'04
'05
'06
Retail: local market v. Mid-Atlantic total
Richmond/Norfolk
vs
Mid- Atlantic Total
Avg. Cap Rate
13.0%
12.0%
11.0%
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'07
'08
'09
'10
'11
'12
Avg. PSF
$500
$400
$300
$200
$100
$'01
'02
'03
'04
'05
'06
Apartment leasing markets stabilizing
U.S. Apartment Markets (2000 – 2017F)
2Q2012 Outlook
380,000
Vacancy
7.5%
310,000
240,000
5.0%
170,000
2.5%
100,000
0.0%
30,000
-2.5%
-40,000
Rent Inflation
-110,000
Completions
Absorption
Vacancy
Rent Inflation (%)
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
-5.0%
Apartment: cap rate & pricing trends
Cap Rates
Price Per Sq. Ft.
Apartment: volume trends
Transaction Volume
Apartment: cap rates & pricing by category
Garden
Mid/High-Rise
Cap Rate
Price Per Unit in Thousands
Apartment: volume by category
Garden
Mid/High-Rise
Transaction Volume
Apartment: local market v. national total
Richmond/Norfolk
vs
Apartment Grand Total
Avg. Cap Rate
11.0%
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
'01
'02
'03
'04
'05
Thousands
'06
'07
'08
'09
'10
'11
'12
'08
'09
'10
'11
'12
Avg. PPU (K)
$160
$140
$120
$100
$80
$60
$40
$20
$'01
'02
'03
'04
'05
'06
'07
Apartment: local market v. Mid-Atlantic total
Richmond/Norfolk
vs
Mid- Atlantic Total
Avg. Cap Rate
11.0%
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
'01
'02
'03
'04
'05
Thousands
'06
'07
'08
'09
'10
'11
'12
'08
'09
'10
'11
'12
Avg. PPU (K)
$200
$150
$100
$50
$'01
'02
'03
'04
'05
'06
'07
Hotel RevPar…
$95.00
70.0
$90.00
68.0
$85.00
66.0
64.0
$80.00
62.0
$75.00
60.0
$70.00
58.0
$65.00
56.0
RevPar
Occupancy Rate
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
50.0
2006
$50.00
2005
52.0
2004
$55.00
2003
54.0
2002
$60.00
Hotels: cap rate & pricing trends
Cap Rates
Price Per Sq. Ft.
Hotels: volume trends
Transaction Volume
Hotels: cap rates & pricing trends by category
Full-Service
Limited-Service
Cap Rate
Price Per Unit in Thousands
Hotels: volume trends by category
Full-Service
Limited-Service
Transaction Volume
Hotels: local market v. national total
Richmond/Norfolk
vs
Hotel Grand Total
Avg. Cap Rate
12.0%
11.0%
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
'05
'06
'07
Thousands
'08
'09
'10
'11
'12
'10
'11
'12
Avg. PPU (K)
$250
$200
$150
$100
$50
$'05
'06
'07
'08
'09
Hotels: local market v. Mid-Atlantic total
Richmond/Norfolk
vs
Mid- Atlantic Total
Avg. Cap Rate
12.0%
11.0%
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
'05
'06
'07
Thousands
'08
'09
'10
'11
'12
'10
'11
'12
Avg. PPU (K)
$300
$250
$200
$150
$100
$50
$'05
'06
'07
'08
'09
Closing Remarks
• Economy: struggling
– Waiting on better job creation
• Leasing markets: stable
• Transaction market: soft
• Major issues that impact all three
• ELECTION RESULTS: MAY OR MAY NOT RESOLVE
CONSUMER AND BUSINESS MARKET UNCERTAINTIES
• FISCAL CLIFF
HUGE FEDERAL TAX INCREASES and
DEEP FEDERAL EXPENIDTURE REDUCTIONS
Addenda
Sources
GDP – Bureau of Economic Analysis (www.bea.gov)
Employment Information – Bureau of Labor Statistics (www.bls.gov) and U.S. Department of Labor (www.dol.gov)
Retail Sales – U.S. Census (www.census.gov)
Housing Information – National Association of Realtors (www.realtor.org); U.S. Census Bureau; and National
Association of Home Builders (NAHB) (www.nahb.org)
Capital Markets Information – Real Capital Analytics, Inc. (www.rcanalytics.com) In addition to collecting
transactional information, RCA interprets the data, including capitalization rates, market trends, pricing, and sales
volume. The firm publishes a series of Capital Trends reports and offers an online service that provides real-time,
global transactional market information. For more information, contact 1-212-387-7103.
Leasing and Capital Market Information – CBRE/Torto Wheaton Research (www.tortowheatonresearch.com)
Outlook product provides detailed data and quarterly forecasts on real estate fundamentals and capital markets
across five property types; custom reports are available. For more information, contact Ken O’Brien, Director,
Client Services – [email protected] or 1-671-912-5200
Squawk Box on CNBC – a business news television program which airs at breakfast time.
Mauldineconomics.com – John Mauldin’s free economic newsletter
SeekingAlpha. Com – stock market news and financial analysis articles sent to you via email.
Let’s Take a Break
VAAO PRESENTATIONS
Part II
Valuation Methodology for Chain Drug Store Properties
Presented
October 11, 2012
By
President
Scope of research
• Understand the properties to be valued
• Research the chain drug store companies represented in the
market area
• Analyze drug store retailer industry trends
• Research and verify local chain drug store sale transactions
• Interview industry participants, including developers and brokers
• Research appropriate literature regarding the industry and
valuation methodology
Chain drug store industry trends
2009 Statistics
• Employs 3.2 million people
• $800 Billion in annual sales
• Ripple effect results in a $1.0 Trillion impact
The BIG three
Walgreens
CVS
Rite Aid
BBB
A+
BBB+
A+
BC
Revenue (millions)
2011
2010
2009
2008
$72,184
$67,420
$63,335
$59,034
$107,100
$96,413
$98,729
$87,472
$26,121
$25,215
$25,669
$26,289
Earnings Per Share
2011
2010
2009
2008
$2.94
$2.12
$2.02
$2.03
$2.59
$2.50
$2.56
$2.27
-$0.43
-$0.64
-$0.59
-$3.49
S&P Credit Rating
S&P Quarterly Ranking
Chain drug store: historical pricing trends
Source: Real Capital Analytics Trends & Trades: Drug Store RET United States
Chain drug store: historical pricing trends
Chain drug store: capital flows
Sale verifications/industry interviews
Designed to determine the answers to several important questions,
including ‒
 Do chain drug store improvements constitute custom-built
properties exclusive to the use by the original tenant?
 Are criteria available in highest and best use analysis to
distinguish between viable chain drug store use and alternative
uses?
 Do chain drug store developers, companies, and investors
overpay in the transaction market for sites, rentals, and
improved properties?
 How does first- v. second-generation space concepts impact
chain drug store valuation methodology?
Custom-built issue
• Built to specific chain drug store company
specifications
• But not custom-built exclusive to original
tenant
• Can be sued by a host of other retailers,
including other chain drug store companies
Highest & best use: 2 possible conclusions
1. If the site, improvements, and/or the neighborhood (trade area)
demographics meet chain drug store company criteria, the
highest and best use conclusion will likely be continued chain
drug store use. Comparable chain drug store site, rental, and
improved sales would be the appropriate comparable data to
use in the valuation process.
2. If the site, improvements, and/or the neighborhood (trade area)
demographics do not meet chain drug store company criteria,
the highest and best use will likely be for alternative use
through conversion, demolition and redevelopment, or some
other modification. In that case, comparable data reflecting
that highest and best use should be used.
Overpayment issue
Buyers (mostly developers and chain drug store
companies) do not overpay for freestanding drug store
sites
•
Larger-than-normal corner sites (very limited supply)
•
Have to pay up for the best location
•
High traffic volume with high residential presence
•
Often requires sites next to dominant grocery chain
store
Overpayment issue
Chain drug store companies do not overpay in rent
•
Rents determined on projected drug store sales
(typical of most retail properties)
•
Cost of occupancy analysis supports this opinion
Cost of occupancy analysis
COST OF OCCUPANCY ANALYSIS
CHAIN DRUG STORES
Drug Store
Lowest
Indication(1)
Highest
Indication(2)
9.64%
2.18%
20.40%
N/A
―
―
Super community/community shopping centers(3)
3.32%
3.48%
15.89%
Neighborhood shopping centers(3)
3.50%
2.76%
17.89%
Open air shopping centers(3)
3.39%
3.39%
17.77%
Enclosed shopping centers(3)
Comparable Sale No. 14
Comparable sales 2, 3, 6, and 7 (average)
8.73%
6.16%(4)
2.86%(4)
2.18%
―
―
20.32%
―
―
Superregional malls(3)
Regional malls(3)
(1)
(2)
(3)
(4)
Lowest indication from all space categories, excluding financial and offices
Highest indication from all space categories, excluding financial and offices
Source: Dollars & Cents of Shopping Centers®/The SCORE® 2008, published by ULI – The Urban
Land Institute and the International Council of Shopping Centers, Inc.
Reflects contract rent only
Overpayment issue
Buyers do not overpay for improved properties
•
Typical purchasers include
– Wealthy individuals seeking long-term, secure
income/safe yields
– Chain drug store companies
First v. second generation space
First-generation space definition:
A building or space designed to be functionally and
economically efficient for an original tenant or class of
replacement tenants over a period of time, during which
the space retains its original utility and desirability.1
(1)
Definition by Peter F. Korpacz, MAI, CRE, FRICS and Richard Marchitelli, MAI, CRE, FRICS
Highest and best use
• The foundation upon which the valuation process is
constructed
• Two important questions often ignored
1. If the property were vacant and available for
lease, what type of tenant would be the most
likely to rent the property?
2. If offered for sale, which type of buyer would be
the most likely purchaser?
Applicable rule and definitions
Standard Rule 1-3 of the Uniform Standards of Professional Appraisal Practice (USPAP)
states –
“When necessary for credible assignment results in developing a market value opinion, an
appraiser must:
a. identify and analyze the effect on use and value of existing land use regulations,
reasonably probable modifications of such land use regulations, economic supply and
demand, the physical adaptability of the real estate, and market area trends; and
Comment: An appraiser must avoid making an unsupported assumption or premise
about market area trends, effective age, and remaining life.
b. develop an opinion of the highest and best use of the real estate.”1
Comment: An appraiser must analyze the relevant legal, physical, and economic factors
to the extent necessary to support the appraiser’s highest and best use conclusion(s).
1
Uniform Standards of Professional Appraisal Practice 2010-2011 Edition©, published by the Appraisal Standards Board of The Appraisal Foundation
Land as if vacant
Four criteria tests are usually employed –
1. Legally permissible
2. Physically possible
3. Financially feasible
4. Maximally productive
Land as improved
Highest and best use decision involves two considerations
1. The value of the property as improved is compared to the value of
the land (as if vacant) at its highest and best use, less demolition
and possession costs (if any). If the “as improved” value is less
than the land value (less demolition and possession costs), then
the highest and best use is for demolition and redevelopment of
the land. If the “as improved” value is the higher of the two, then
the existing use is the highest and best use.
2. If the “as improved” value is greater, then the second
consideration involves an examination of any remaining
development potential (or reuse) of the existing property with
respect to the four factors (legal, physical, financial, and highest
present value).
Likely buyer
• Determination of highest and best use come first
• Then, research likely buyers for that use
‒ analyze recent transactions and
‒ pricing methodologies
• For chain drug store properties
‒ Investors, both as individuals and in small groups
‒ Chain drug store companies
Approaches to value
Cost approach
• Rarely used by investors
• Very relevant to chain drug store companies
Income capitalization approach
• Direct capitalization preferred by investors
• Yield capitalization rarely used by buyers
Sales comparison approach
• Of minimal use to buyers
Extraction of cap rates (OARs) from sales
• Most direct technique, firmly rooted in market behavior
• Requires a robust verification process
• Must understand motivations and verify pricing
methodology
• It is not just price and cap rate, thanks, and goodbye
• And, it is definitely not using comp sale providers comp
sheets without further verification
Fee simple v. leased fee issues
• All leased property sales are leased fee estates
• Contract to market rent relationship very important
– Develop fee simple cap rate proxies
– Sales where rents/NOI are at market
– Use cap rate direction indication from above or
below market rent transactions
Comp sales with market contract rents
• Typical market growth potential
• The best proxy for a fee simple cap rate
• Requires no adjustment
Comp sales with above market contract rents
• Limited upside NOI potential
• Requires downward cap rate adjustment to reflect fee
simple market rent characteristics
Comp sales with below-market rents
• Have upside NOI potential
• An upward adjustment is required to reflect fee simple
market rent characteristics
Investor surveys
• Available for 25+ years
• Especially useful when market conditions are changing
• Also useful in times of distress or anytime when comps
are limited
Band of investment technique
• Reflects a leveraged transaction
• Mortgage component info is usually readily available
• Equity dividend rate is problematic
Source of equity dividend rates
• Leveraged-comparable sales
• Built-up rate – where is the market support?
• Personal investor surveys
Relevance of the band of investment
• Credibility relies on extracting market-supported equity
dividend rates
• Fee simple vs. leased fee issue also must be addressed
– Comp sale rents at market rent, or
– Above or below market rents
• Does subject valuation premise reflect all cash or
leverage?
Sales comparison approach
• Price per leasable square foot – the usual unit of
comparison
• Property/tenant types should match up with the subject
– Highest and best use conclusion
• Fee simple vs. leased fee issue must be addressed
– Rents at market, or
– Above or below
Sales comparison adjustment
• The usual cast of characters
 Financing terms
 Market conditions
 Location
 Physical characteristics
 Etc.
• Significant focus on fee simple vs. leased fee property
estates
Fee simple vs. leased fee adjustments
• Look for fee simple proxies
– Buyer users
– Sale property rents/NOI at market level
• Get price direction for subject from
– Sales with rents/NOI above or below market levels
Additional handouts
• Comparable sale examples
• Industry interviews
Addenda
Sources
National Association of Chain Drug Stores (NACDS) – Chain Pharmacy Industry Profile: 2010-2011; founded in
1933, NACDS works to provide the chain drug industry with a unified voice necessary for growth and success.
(www.nacds.org)
CoStar – Drug Stores Trump Most Retail Categories on New Store Additions and Property Sale Transactions,
October 14, 2009; commercial real estate information company (www.costar.com)
Annual Reports or 10-K Reports of CVS, Rite Aid, and Walgreens – these reports are available on line at the
respective company websites or through the Securities and Exchange Commission’s (SEC) EDGAR database .
(www.sec.gov/edgar/searchedgar/company)
Standard & Poor’s (S&P) – a stock market index based on the common stock prices of 500 top publicly traded
American companies, as determined by S&P (www.standardandpoors.com)
Real Capital Analytics (RCA) – In addition to collecting transactional information, RCA interprets the data,
including capitalization rates, market trends, pricing, and sales volume. The firm publishes a series of Capital
Trends reports and offers an online service that provides real-time, global transactional market information.
For more information, contact 1-212-387-7103. (www.rcanalytics.com)
ANNUAL CONFERENCE
VIRGINIA ASSOCIATION OF ASSESSING OFFICERS
Real Estate Market Overview
and
Chain Drug Store Valuation Methodologies
October 11, 2012
Presented by
3121 Glen Abbey Drive
Mt. Airy, MD 21771
301.829.3770 (p); 866.213.3772 (f)
[email protected]

Korpacz Realty Advisors

Transcription

Similar documents

TEXT ANALYTICS

Exclusive listing broker: HomeLife/Bayview Realty

Mincom New Choice Realty Ltd. Brokerage Brochure

Pahlen Realty, Inc. proudly presents

real people real experience real service a real

Commercial Land for Sale $1,500,000 - Beiler

welcome to 31 rachett road

Sutton Group Summit Realty Inc. Brokerage Brochure - 4166

Welcome To 7460 Bathrust St #614, Thornhill, L4J7K9 Batya Mishan

Coldwell Banker Sarazen Realty, Brokerage Brochure - 889