Which Real Estate Valuation Approach is Most Reliable?

San-Diego-Commercial-Real-Estate-AppraiserWhen appraising commercial real estate, there are three generally accepted approaches to value: the sales comparison approach, the income capitalization approach, and the cost approach. Each approach is used to help assist an appraiser to determine an opinion of value, and many times all three approaches are used to appraise a single property. However, there are instances where one approach may be considered more reliable or credible than the others. Here are instances when a particular approach is the most reliable valuation method.

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Religious Facility Appraisal in Poway, San Diego County

Religious-facility-church-appraisal-poway-san-diegoIRR San Diego has completed a commercial appraisal of a religious facility property located in Poway in San Diego County. The property consists of three buildings totaling about 13,000 square feet of gross building area. The buildings, built between 1925 and 2013, are 100% occupied by an owner-user. The site area is 2.79 acres. The purpose of this commercial valuation was for loan underwriting purposes for a lender.

If you have any religious facility appraisal questions or needs, please contact us today at 858-259-4900 or sandiego@irr.com.

2015 Changes to Estate Taxes (and How it Affects Real Estate Appraisals)

IRS-Estate-Tax-Appraisal-San-DiegoAs 2014 comes to an end, it is important to look at what is changing to estate tax requirements in 2015. Here is a summary of estate tax laws, what is to come next year, and how these changes affect the valuation of your real estate.

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How to Challenge a Commercial Appraisal

san-diego-commercial-appraiserWhether a property is being appraised for estate tax purposes, a refinance, or a purchase, there are times when an appraiser’s opinion of value may differ from your own. If this happens (and you know that your opinion is more accurate), there are a few steps one can take to ensure that an opinion of value is reconsidered.

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San Diego Hospitality Summit Recap

san-diego-hotel-appraiserIRR San Diego attended Bisnow’s Hospitality Summit, where developers, investors, and even Padres management shared their views on the San Diego Hotel market. Here is a recap of the event.


The San Diego tourism market is climbing quickly out of the recession, with occupancy rates above 78% according to Joe Terzi of the San Diego Tourism Authority. With such a strong recovery and a forecast of ever-improving market conditions, hotel owners are holding on to their investments, which is leading to a lack of inventory.  Like other property types where money is chasing few deals, it is a difficult time to buy hotels in San Diego (despite the low cost of capital), which is leading some to believe that San Diego hotels may reach the $1 million per room threshold.

Another trend for hotel properties is to buy in Downtown San Diego, one of the hotter submarkets in the area (which is a similar trend for apartment developers and investors that spoke at the last Bisnow summit). While the panelists agree that it is difficult to build downtown (see below for challenges), this consequently creates no oversupply, but rather opportunities for infill projects. Read More

Oceanside Shopping Center Appraisal

Shopping-center-retail-real-estate-appraisal-oceansideIRR San Diego has completed a  commercial appraisal of a retail (shopping center) property located in Oceanside in San Diego County. The property consists of approximately 16,000 square feet of gross leasable area in two buildings and is located on a 1.83 acre site. Built in 2003,  the shopping center is 100% leased to 10 tenants. The purpose of this commercial valuation was for loan underwriting purposes for a life insurance company.

3 Common Commercial Real Estate Appraisal Questions

San-Diego-Commercial-Appraisal-QuestionsRecently, we discussed the ways to help prepare for a commercial real estate appraisal, which included providing as much income/expense information as is available and helping the appraiser inspect the entire property.

There are many questions that can be asked regarding a commercial appraisal. Here are some of the more common.

What if I don’t have any income or expense information?

As stated previously, appraisers generally ask for three years of income and expenses. If three years are not available, then provide as many years as you can because some information is better than none. If no information is available, then inform the appraiser and he or she will state this in the report. If there is no historical information, the appraiser will generally use market rent and market expenses, which are based on comparable properties and industry benchmarks.

Do I have to meet the appraiser at the property?

Sometimes, the owner or property representative is out of the area or unavailable to physically be at the property during the appraiser’s inspection. As long as the appraiser has full access to the subject property, then an owner or representative does not have to necessarily be present. However, it is important to 1) let the appraiser know of any important issues prior to the inspection (such deferred maintenance) and 2) be available for follow up in case issues or questions arise after the inspection.

What happens if not all of the property is inspected?

There are some assignments where portions of the property are not able to be fully accessed. For example, in a hotel appraisal or apartment appraisal some of the units may be occupied and unable to be accessed. If you know that an appraiser cannot access the entire property in advance, please let them know. The appraiser will state this in the report and will generally add an extraordinary assumption to the report, assuming that the condition of the areas not inspected are similar to those that were.

Do you have any other questions about the appraisal process? If so, or if you have any need for a commercial real estate appraisal in San Diego County, please be sure to contact us directly. Also, please be sure to check out our YouTube page, where we provide education on the appraisal process as well as answer other frequently asked questions.

Preparing for a Commercial Appraisal: Two Ways to Help Appraisers Produce an Accurate Report

Encinitas-Commercial-AppraiserThere are many components involved in a commercial appraisal. From researching zoning and market conditions to confirming sale and lease data, much of the report preparation is done by appraisers in their office away from the subject property. While this is true, the parties involved with the subject property – whether it is an owner, attorney, accountant, or broker – all play a very important part in helping the appraiser provide an accurate valuation. Here are two ways to help appraisers produce an accurate report.

Property Information

One of the ways to help is to provide as much information about the property as possible, especially if it is an income producing property such as a shopping center or a multi-tenant office. Here are some important items that appraisers will need:

  • Rent Roll: A report showing the current rent information of each tenant is important as it may differ from the lease. For example, the landlord may not enforce rental increases even though they are stated in the lease.
  • Leases: Ideally, it is best to provide the entire lease (as opposed to just the first page with the pertinent information) because it gives the appraiser a chance to review how expenses are handled, information regarding options (if any), and other addenda items such as tenant improvement allowances, free rent, etc.
  • Operating History/Profit and Loss Statement: This includes historical information regarding the subject’s income and expenses (e.g. taxes, insurance, repairs and maintenance, etc.). Generally, an appraiser would like three years of history, year-to-date information, and a projected budget (if available) to look for trends or anomalies. This operating history is typically found in financial reporting software, but can also be found on the Schedule E form of a Tax Return.

Property Inspection

The second way to help an appraiser produce an accurate report involves the property inspection. The objective of the inspection is to take pictures and measurements of the building as well as see the property’s physical and location characteristics (such as deferred maintenance, traffic, surrounding neighborhood influences, etc.).

Typically, it is best for an appraiser to inspect the interior and exterior of the entire property. Therefore, the owner should contact every tenant to let them know of the appraiser’s arrival and that they will be taking pictures and measurements. This may not be possible with all commercial real estate appraisals such as hotel appraisals and apartment appraisals (due to units being occupied or unavailable), so the next best scenario would be to see a representative sampling of each type of unit. For example, if a 20-unit complex includes 10, two-bedroom units and 10, one-bedroom units, then the appraiser should inspect two to three of each type.


The parties involved with a property being appraised play an important role in helping an appraiser produce an accurate and credible report. Providing as much information as possible as well as assisting the appraiser with inspecting the entire property are important pieces to the appraisal process.

If you have any questions about the appraisal process or real estate valuation, or if you are in need of San Diego appraisal services or valuation consulting, please contact us today.

San Diego Economic and Financial Update Recap

858.259.4900-San-Diego-Commercial-Appraiser-Economic-UpdateOn Thursday, Eric Schneider, MAI attended the Burnham-Moores Economic and Financial Update Conference, an event held by USD each summer where presenters discuss current and future economic conditions, both nationally and in San Diego. The speakers included Mark Fleming, PhD, chief economist of CoreLogic and Alan Gin, PhD, associate professor of economics, University of San Diego. Presented below are some highlights of the meeting.

The Housing Market – Returning to “normal”

Mark Fleming presented on the continuing recovery of the housing market, and based on his research the housing market is not as bad as one would think. Though existing home sales are down, sale prices are continuing to increase because of the fact that there are less distressed properties being sold. Additionally, Mr. Fleming stated that houses are still relatively affordable compared to historical data, and issues such as student debt are not necessarily a factor as the debt burden for education has remained unchanged due better repayment terms.

That said, Mr. Fleming forecasted that there will less home sale activity in the future, one of the reasons being the expected increase in interest rates. Homeowners who financed purchases with a low interest rate are predicted to stay in their homes longer because there is no incentive to move and buy another property at a higher interest rate. This increase in rates will also lead to a decline in refinancing.

The National Economy – Forecasted to growth, but weakly

Alan Gin stated that while the GDP growth rate has been positive for the last 4 years, it has been relatively sluggish. Historically the average growth rate was 3.5% (prior to the great recession), but the current growth rate has averaged around 2%. The main reason for this lack of growth is that there is less consumption compared to years past.

The decline in consumption is primarily due to a lack of employment. Although the U.S. has experienced positive employment growth over the last 52 months (of the 8.8 million jobs lost in the recession, 9.1 million jobs have been created), the real unemployment rate remains an issue. The U-3 employment rate (which includes those seeking full-time employment) is around 6.1%, but the U-6 employment rate (which includes marginally attached workers, discouraged workers, and those working part-time for economic reasons) is closer to 12.1%. During the recession, businesses streamlined their operations to become more productive with their smaller existing workforce. Additionally, they are increasingly using temporary and part-time workers as they become more efficient. In turn, businesses are becoming more profitable, but they are slow to hire.

The San Diego Economy – Looking positive, but still facing challenges

Overall, Mr. Gin stated that the local economy is “great” with about 30,000 jobs being added each year. The top four job growth sectors include professional/technical services (lawyers, research and development, etc.), leisure/hospitality (tourism), construction, and health care. These are important sectors as these types of jobs are typically high-paying.

Despite improving economic conditions, there are some of the challenges that San Diego faces. The first is that there is a high cost to do business in San Diego. Aside from government regulations and taxes, high property costs equate to having higher wages in order to attract workers. In addition, there is competition from other states to have San Diego companies relocate. Specifically, states such as Texas have paid millions of dollars through their Enterprise Fund to have San Diego companies like Websense move. A third challenge is that there is a lack of single family development in San Diego. As we learned from Bisnow’s Multifamily Summit, there is an increase in multifamily development and a focus on urban, mixed-use projects. According to Mr. Gin, the issue is that there are typically fewer jobs created for multifamily development than single family development; it takes fewer workers to develop a 10-unit apartment project than 10 houses.


The economy, both nationally and locally, is continuing to improve. However, there are several factors that prevent growth similar to previous years. While both presenters forecasted positive economic conditions, the projected gains will not be dramatically significant. This is similar to the commercial real estate data reported in our mid-year market updates; growth is expected for the five main property types, but no significant increases in value are projected in the near future.

2014 Mid-Year Update

san diego commercial real estate appraiserIntegra Realty Resources – San Diego, along with its 60+ offices nationwide, has just published mid-year updates to our annual Viewpoint publication – with both a National Overview and over 300 Local Market reports.

In these analyses you will see details about how the San Diego commercial real estate market, as well as markets across the country, is continuing to recover.

Decreasing vacancy rates, moderate/high new construction growth, high absorption rates, and medium/high rental rate growth are all trends revealed in this mid-year compendium of reports.  We’ve also detailed trends across five key property types: office, multifamily, retail, industrial, and lodging.

For a complete look at the data presented in IRR Mid-Year Viewpoint 2014, please click on the links below.

2014 Mid-Year Viewpoint San Diego Office

2014 Mid-Year Viewpoint San Diego Industrial

2014 Mid-Year Viewpoint San Diego Retail

2014 Mid-Year Viewpoint San Diego Multifamily

2014 Mid-Year Viewpoint San Diego Hospitality

Information regarding other markets can be found by clicking here. The national mid-year update can be found by clicking here.

We hope that this market update is valuable to your commercial real estate decisions. As always, if you have any questions regarding our research, our forecasts, or commercial real estate valuations, please contact us directly.


San Diego Multifamily Summit Recap – Part 1

Integra-Multifamily-Appraisal-San-DiegoOn July 16th, Eric Schneider, MAI and Joseph Rizzo attended the 2nd annual San Diego Multifamily Summit put on by Bisnow. Several San Diego apartment trends were discussed by two panels: a lending and a development panel. In this two-part recap, we summarize what each panel discussed beginning with the lender panel.

What trends are we seeing in the San Diego multifamily lending market?

One of the major changes that has occurred recently is that lenders are more active in providing financing compared to three to four years ago. There has been a resurgence in loans for construction, mezzanine financing,  private money, and full non-recourse loans. Additionally, borrowers that have been previously foreclosed on are no longer considered to be automatically rejected for a loan; instead, lenders are more interested in the reputation and character of the borrower. Lenders are also interested in the story, or why they were foreclosed on in the past. They are not concerned about over-building, but rather financing a sound project.

Another trend is that, based on the panel’s recent experience, there is more capital “chasing deals” than there are actual transactions. Whereas a few years ago it was difficult to finance a good deal, lenders are now in competition with each other, with lenders even competing over construction lending.

What are some current and future concerns with multifamily lending?

As far as concerns, one that was highlighted was that rents are currently outpacing economic growth, which means that it may come to a point where renters are not able to afford the apartments being built because wages have not increased. That being said, the panel’s consensus was that lenders are closely watching what is happening in the economy, and that the borrower should be concerned about deals making financial sense in the long run. For example, a deal may make sense if capitalization rates continue to be low, but what will happen when interest rates increase? Will the deal still make sense if apartment properties are not selling at a 4% or 5% cap rate?

Outlook and Summary

Each of the panelists were asked what is going to happen to interest rates in the next 12 and 36 months. All generally agreed that interest rates will increase, but they were uncertain as to how much. Compared to historical numbers, the interest rate has remained relatively low following an economic downturn, so they were unsure how interest rates would be impacted in short run and in the long run.

For now, the lending market continues to improve with more available financing options compared to a few years ago. While borrowers will benefit in the short run with lender competition, lenders are concerned with how long these types of deals will last, especially considering that interest rates are expected to increase in the near future. Though market conditions are positive, borrowers need to be considering both the short term and long term effects of their deals.

What is an MAI Appraiser and Why It Matters to You

This month, Senior Analyst Eric Schneider earned the MAI designation from the Appraisal Institute (check IRR’s blog post for more on his achievement). He is the fourth appraiser in Integra’s San Diego office to achieve this prestigious award.

When choosing a commercial real estate appraiser for your valuation needs, there are a few things you need to know about the MAI designation and why it is important.

What is an MAI?

According to the website of the Appraisal Institute, a professional association with over 20,000 members throughout the world, the MAI membership designation is held by appraisers who are experienced in the valuation and evaluation of commercial, industrial, residential, and other types of properties, and advise clients on real estate investment decisions. These designated members have met rigorous requirements relating to education, testing, experience and demonstration of knowledge, understanding and ability. Additionally, this designation has long been recognized by courts of law, government agencies, financial institutions, and investors as a mark of excellence in the field of real estate valuation and analysis.

What does this mean?

In short, MAI appraisers are valuation professionals who have spent years obtaining additional education and experience beyond state-certified requirements. This designation is not easily earned, as in addition to education and experience, one must pass several comprehensive exams and demonstrate their knowledge by writing a complex analysis of a commercial property (similar to a thesis paper for a PhD). Not all of the Appraisal Institute’s 20,000+ members are MAI’s, and not all commercial appraisers have this designation.

Choosing a Commercial Appraiser

When choosing a commercial appraiser, it is important to ask if they have an MAI designation because it shows that the appraiser has taken the time to improve their valuation and analytic skills. While there may be many appraisers without this designation that have the knowledge and experience to appraise your property, an MAI-designated appraiser adheres to higher standards set forth by the Appraisal Institute compared to a general-state certified appraiser.

That said, your choice may be between two (or more) MAI-designated appraisers. In this case, it is best to ask them questions related to your property. For example, you would want to ask about their experience appraising a particular type of property, or how many estate and trust appraisals they have completed in the last year. These questions will indicate if they are familiar with your property type and if they are active in both your market and the type of valuation needed. Lastly, they should be able to provide testimonials from others who have had similar appraisal needs.


An MAI designation is a prestigious achievement that ensures that the appraisal or valuation service provided observes the highest standards. If you have any additional questions about the designation, or if you would like more information on how Integra San Diego can provide valuation services, please contact us today.