Integra – San Diego Appraises Industrial Property, San Diego

2016-0040picIRR-San Diego recently  completed the appraisal of a single tenant industrial warehouse property consisting of 64,160 SF gross leaseable building area, on 3.91 acres, built in 1987. The site is 100% occupied by a single tenant. The purpose of the valuation was for loan underwriting.

 

Integra – San Diego Appraises Major Hotel Chain Property

IRR-San Diego recently valued market value as is of the total assets of the business (MVTAB). This was a fee simple/leasehold interest, a going concern interest, specifically excluding monetary assets of cash and inventory of a 395-room full service hotel, with a site area of 10.41 acres, located adjacent to a major regional international airport. The appraisal was done for internal valuation purposes prior to a potential sale.

Restaurant and Parking Lot Appraisal, San Diego Beach Community

Integra San Diego recently completed an appraisal consisting of an existing restaurant property of approximately 2,600 square feet of gross leasable area, on 0.06 acres, or 2,700 Square feet, and a parking lot that is non-contiguous, located approximately 2 blocks away from the restaurant. The parking lot site area is approximately 0.06 acres or 2,748 square feet. The client requested that the two properties be valued separately. The subject properties were in escrow at the time of the appraisal. Both the Sales Comparison Approach and the Income Capitalization Approach were used in this valuation. The purpose of this appraisal was for lending purposes with a financial services institution.

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.

Summary

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.

Summary

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 2

San Diego Apartment AppraisalIn our last post, we highlighted discussions from Bisnow’s Multifamily Summit, specifically apartment lending trends, concerns, and predictions.  In part 2 of our recap, we summarize comments made by the apartment development panel.

San Diego Apartment Development Trends

San Diego multifamily development continues to be focused on urban projects. The most active areas of development include urban infill, mixed-use development, transit-oriented development, and development focused on a 24/7 lifestyle. The current trend is a live/work/play environment, so submarkets such as downtown will continue to have opportunity.

Another continuing trend is developing more energy efficient apartment units, especially in light of new energy efficient regulations. For high end, Class A apartments, it is an expectation for a project to be green, so developers are trending toward energy efficient items such as green roofs, solar power, and car charging stations. That said, energy efficiency is not necessarily a huge impact for Class B and Class C apartments. For these types of properties, there is only a benefit if it positively impacts the bottom line.

A third trend is a desire from renters to live in projects with smaller units, but with more amenities. The reason for this is that smaller units make more economic sense, so developers are building more 1-bedroom units and including amenities such as storage. While San Diego may not be experiencing a rise in micro-apartments like San Francisco, the trend is moving toward smaller-sized units.

Future of Condominium Development vs. Apartment Development

For the short-term, the panel stated that there will not be much condominium development in San Diego. While there is some pent-up demand, the focus is on apartment development until condo development makes financial sense. Prior to the last great recession, the panelists agreed that there was a condominium conversion craze, due in part to the fact that financing was easily obtainable. Now, current lending conditions are considered to be “normal” in relation to almost 10 years ago. Despite a lack of condo conversions or development in San Diego, one of the panelists noted that their apartment projects  are either already mapped for condominiums or are being designed for a future condominium conversion.

Development Challenges in San Diego

Several development challenges were discussed during the presentation. The first challenge presented was inventory. The lots that are available to be developed are small; coupled with design requirements imposed by the City of San Diego, developers are required to build subterranean parking, which increases cost.  Another challenge is increased competition from developers due a lack of available projects to develop which is causing developers to move to secondary markets in order to build projects that are financially feasible.  A third challenge is the fact that a large majority of condominium development or conversions are subject to litigation. Litigation is such a concern that developers factor insurance costs into their cost models to covered being sued. Others completely stay away from conversions or, if they sell an apartment complex, add a restriction that prevents conversions.

Summary

The Summit’s development panel discussed a variety of topics centered around trends and challenges to build in San Diego. Overall, areas such as downtown San Diego continue to be the focus for future development. What is interesting to note is that there was little discussion on multifamily development in suburban San Diego. While there was discussion about developing more transit-oriented projects (such as along the proposed trolley line in Clairemont), most of the discussion leaned toward urban apartment projects. For the time being, the downtown is where the focus will be.

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.

UA-53447983-1