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Transcript of 1 05/03/14 Presented to: CCCMAC Presented to: CCCMAC Research Valuation and Advisory Services...
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05/03/14Presented to:CCCMACPresented to:CCCMAC
Research Valuation and Advisory ServicesPresented by: Cameron McAlpine, BA, AACIPresented by: Cameron McAlpine, BA, AACI
Altus GroupAltus Group
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Five primary business units:
– Research, Valuation and Advisory (Appraisals)
– Cost Consulting & Project Management (Construction)
– Realty Tax Consulting
– Geomatics (Surveying)
– ARGUS Software (Real Estate Financial Modeling)
About Altus
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International Scope
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13 offices across Canada and approx. 300 staff
80+ Accredited Appraisers
2 large offices in Ontario – Toronto and Ottawa covering all of the province
Research services provided through Altus InSite
Advisory services through Altus Economic Consulting
Specialization by property type and service
Largest database of sale and lease transactions in Canada
Appraisal Management Expertise
Altus Group Research, Valuation & Advisory (RVA)
Appraisals Appraisals
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What is an Appraisal?What is an Appraisal?
“A formal opinion of value: prepared as a result of a retainer; intended for reliance by identified parties, and for which the appraiser assumes responsibility.” ( Definition, S6.2 of CUSPAP)( Definition, S6.2 of CUSPAP)
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Appraisal Institute of CanadaAppraisal Institute of Canada
The Appraisal Institute of Canada acts as the governing body for appraisers in Canada
The Appraisal Institute of Canada sets out guidelines for the required content of an appraisal report
Each AIC member must follow a set of standards and code of conduct set out in the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP)
Majority of financial institutions require appraisals signed by an AACI designated member for lending purposes.
Website: www.aicanada.ca
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Highlighted Key ElementsHighlighted Key Elements
Define the value of the property you are appraising
– Go Dark Value
– Insurable Replacement Cost
– Market Value “The most probable price which a property should bring in a
competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably and assuming the price is not affected by undue stimulus.” Definition of Market Value (CUSPAP)Definition of Market Value (CUSPAP)
Effective date of an appraisal
– Identifies the date as to which the valuation was concluded
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Valuation Methodology
– Cost Approach
– Direct Comparison Approach
– Income Approach
Highlighted Key ElementsHighlighted Key Elements
Highest and Best Use
– Properties are appraised as to their Highest and Best Use
– Optimum use that is legally allowed and financially viable.
Highest and Best Use
– Properties are appraised as to their Highest and Best Use
– Optimum use that is legally allowed and financially viable.
Approach to ValueApproach to Value
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Approach to Value:Approach to Value:
Cost Approach:
The Cost Approach involves adding the market value of the
land to the depreciated value of the building and site
improvements.
Rarely used as it does not reflect market conditions.
Direct Comparison Approach:
In the Direct Comparison Approach, an opinion of value is
developed by applying a comparative analysis of properties
that are similar to the subject property that have recently
sold, are listed for sale or are under contract, which focuses
on the similarities and differences that affect value.
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Example: Vacant Industrial BuildingExample: Vacant Industrial Building
25,000 s.f. industrial building, used for warehouse storage.
Well located in Markham, 10 years old, attractive office, good shipping and parking.
Review of recent sales and listings show other vacant buildings have sold between $100 and $110 per square foot.
Discussions with real estate agents active in the market reveal good demand for industrial buildings.
Overall, a value of $110 p.s.f. was selected.
Building value of $2,750,000.
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Income Approach:
The Income Approach is typically used as the primary method of
valuation when a property is expected to be acquired by an
investor
Two primary income valuation procedures are:
Direct Capitalization
Discounted Cash Flow (DCF)
Approach to Value:Approach to Value:
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Direct Capitalization:
– This procedure involves dividing stabilized annual net income by a singular rate that takes into account all of the comparative investment characteristics of the property.
– Cap Rate derived from sales of comparable investment properties.
Discounted Cash Flow (DCF):
– The Discounted Cash Flow Procedure calculates the present value of the future cash flows over a specified time period, including the potential proceeds of a deemed disposition, to determine market value.
Approach to Value:Approach to Value:
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Value EquationValue Equation
V(Value)
= R(Capitalization Rate)
I(Income)
4 Key Elements to Income Value4 Key Elements to Income Value
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4 Main Elements to Income Value 4 Main Elements to Income Value
1. Level of Occupancy
Leased vs. Vacant
2. Level of Income
Relationship to market rent for the space
3. Duration of Income
Length of the lease term(s)
4. Quality of Income
Who is/are the tenant(s) securing the income
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Example – Investment ScenarioExample – Investment Scenario
Small, 5 unit retail plaza (15,000 sq. ft.).
Fully leased, generates $255,000 per year in income.
Rents are close to market levels. Lease terms are all about 4 years long.
Local businesses with only limited operating histories.
Research determined comparable properties sell for 6.50% to 7.00% capitalization range.
Overall, a 6.75% cap rate was determined to be appropriate.
Value concluded at $3,780,000 ($250 per square foot).
Different Asset Classes Different Asset Classes
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Multi Residential – Other Key FactorsMulti Residential – Other Key Factors
Location
– Access to employment, transportation and amenities
In place rents within building
– Rent control can limit upside potential
Demographic profile of the neighbourhood
– Investors prefer neighbourhoods that offer potential income growth
Gross Rents
– Operating costs and realty taxes efficiencies fall directly to the bottom line
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Office – Other Key FactorsOffice – Other Key Factors
Location
Location
Location
Strength of surrounding office node is a key value driver
Vacancy levels and trends
New Inventory
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Retail – Other Key FactorsRetail – Other Key Factors
Location/visibility to a good flow of traffic
Sales volumes
Presence of anchor tenants to attract customer traffic
Percentage rent clauses (Participation Rent)
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Industrial – Other Key FactorsIndustrial – Other Key Factors
Functionality of building
Adaptability of uses
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DISCUSSION DISCUSSION