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CASE STUDY Appraisal of a Strata Industrial Property
Transcript of CASE STUDY Appraisal of a Strata Industrial Property
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CASE STUDY
Appraisal of a Strata Industrial Property
The following case study introduces the appraisal of strata industrial developments. This case study pertains to a
strata development of a small, single strip industrial building with office space. The analysis is typical, in that
the appraiser has analyzed a preliminary project design, for the purpose of evaluating overall feasibility to
facilitate project financing.
The Site
Location
The subject property is located in the Townsville Industrial area, in New Town, in a sub area known as the Pitt
Road Industrial area. The site lies on a mid block setting, on the north side of Spoke Avenue, approximately one
block south of Pitt Road.
Shape and Size
The subject site is approximately rectangular, with frontage on Spoke Avenue of approximately 117 feet (35.66
m), and depth of 355 feet (108.2 m). Reported site area is 0.95 acres (0.385 hectares), more or less.
Topography
Terrain in the general area is predominantly level, subject to a modest decline towards the south. The subject site
declines by 3 feet (0.91 m) from north to south, representing less than a one percentage grade variance,
according to mapping at the New Town Hall.
Soil Conditions
We have not been provided with, nor have we commissioned a soil survey for the subject site. For the objective
of this report, we assume that the bearing capacity of the land is adequate to permit development, without undue
and costly site preparation.
While not qualified at such, we did not observe any obvious evidence of contaminants or hazardous materials at
the property, and have no knowledge of historical activities that would deposit these. A Phase I environmental
site assessment prepared by the New Town firm of Environmental Laboratory Inc., and dated April 23, 2010,
concluded that “it does not appear that there has been any past or present industrial activity that is of
environmental significance on the subject property over the known historical period ... this Phase I
environmental assessment does not reveal sufficient significant evidence to suggest potential contamination at the
subject property”.
Our value estimate assumes without verification that there is no material on, in or near the property that would
cause a loss in value.
Access
Roadway access to the site exists from Spoke Avenue only. An easement over the lot to the north is provided for
in the current purchase agreement. This easement will provide access to Pitt Road. Community and regional road
access is excellent, since Pitt Road, one block to the north, becomes South Bend Way as it passes through New
Town, and the Trans Canada Highway, which lies approximately two blocks to the north, may be reached via
South Bend Way, Townsville Road, and Simons Road.
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Visual Exposure
Traffic on Spoke Avenue is essentially local oriented and is insufficient to provide a material commercial benefit
to the property. At elevation, attractive views will exist of the surrounding countryside. However, height
limitations inherent in land use controls limit the practical benefits of this aspect.
Street Improvements
Spoke Avenue has been redeveloped in recent years to reflect contemporary urban engineering standards. The
road contains two lanes paved for traffic, flanked by two paved parking lanes. Concrete curbs, gutters and
sidewalks and streets are present. Upgrading of Spoke Avenue occurs with subdivision and development
projects. The property immediately east of the subject has not as yet dedicated the required land [33 feet (10.06
m) of depth] to complete the road right-of-way, nor installed the off-site improvements.
Utilities
Utility services typical of an urban community are available in the area, and include municipal water and
domestic sewer, storm water drainage, electricity, natural gas, telephone, and cable television.
Surrounding Developments
The Townsville Industrial area in the immediate vicinity of the subject is largely built up, and the subject
represents one of the remaining few undeveloped sites in the area. Situated north of the property is another
undeveloped site, which was formed by subdivision of the larger lot from which the subject arose. This lot is
presently available on the market. A single tenant industrial structure lies to the east of the property, while
multiple tenant industrial buildings lie to the north, facing Pitt Road, and on either side of the vacant sister
parcel.
A fenced and treed site lying west of the property has been vacant for some time. Lands further to the west are
in use as a storage yard for a lumber yard property that fronts onto Pitt Road.
The remainder of the block containing the subject is improved with relatively modern, low-rise industrial
properties. There are a number of multi-tenant industrial warehouse/business park developments in the area that
are of recent vintage. Land uses along the south side of Spoke Avenue tend to be more heavily industrial in
character, although a multiple tenant, multi-building industrial development exists at the south west corner of
True Street. In spite of the general lack of undeveloped sites in the area, industrial activity in the Townsville
Industrial area containing the subject is likely to continue, as sites utilized for other purposes, or under-utilized
(by uses such as a scrap yard or equipment storage yard) move to higher and more efficient uses.
The Proposed Improvements Design and Plan
The proposed improvements comprise a single industrial building, situated near the west property line. The
design depicts nine bays, although tenants could combine two or more bays to form a larger unit.
The proposed building will lie approximately four feet (1.22 m) from the west property line, 14 feet (4.27 m)
from the south property line and 30 feet (9.14 m) from the north property line. Thirty-six parking stalls are
arrayed along the east side of the property, with an additional five along the north side of the building. Situated
between the parking on the east side and the building along the west side is an internal transportation road. The
purchase agreement for the subject land provides for an easement from the subject site across the site to the north
to Pitt Road.
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Building statistics follow:
Floor Area:
Ground Floor Warehouse 17,781 square feet
Mezzanines 5,000 square feet proposed
Total 22,781 square feet
Site Coverage Ratio: 43%
Floor Space Ratio: 55%
Parking Stalls: 41; 1.8/1,000 square feet of building
Loading Bays: 9: one per bay
Construction is of steel frame, with concrete tilt-up panel exterior walls. The roof will be flat. Height of the
building will be 26 feet (7.92 m), from the floor elevation to the top of the panel, with interior clear height
estimated at approximately 21 feet (6.4 m).
Exterior finishing reflects a contemporary design. Typical interior bays are 32 feet (9.75 m) wide, with
approximately half of the elevation dedicated to the front loading door and the remainder dedicated to a two
storey office/mezzanine area featuring ample, 8 foot (2.44 m) tall glazed windows and commercial storefronts.
The project concept entails a full width mezzanine development along the units on the north and south sides.
These areas have independent entries, via staircases. The remaining bays provide for mezzanine buildout, but
this is not shown in the construction drawings. Overall main unit sizes are as follows:
Rentable Area
Unit on Grade (sq.ft.)
1 2,376
2 1,840
3 1,840
4 1,840
5 1,840
6 1,840
7 1,840
8 1,840
9 2,379
17,635
Actual buildout of the mezzanine will be determined by tenant requirements: the plans depict full buildout of the
mezzanine on the north and south units. The developer presently anticipates building a total of 5,000 square feet
(464.5 m2) of finished mezzanine space, bringing the gross building area to 22,781 square feet (2,116.4 m2). The
practical limit of mezzanine space will be determined by land use controls and parking requirements: in some
instances, economics of development change as mezzanine buildout increases, since small mezzanines may not
require the full sprinkler and other fire proofing treatment necessary for larger finished mezzanine areas.
The developer proposes to construct the project with rental in mind, and would install a common hot water
heating system throughout, with nine zones. The finished floor areas in the mezzanines will additionally feature
roof mounted HVAC units. Full office finishes are anticipated for the mezzanines as well as for the at grade
space immediately beneath.
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Preliminary building specifications follows:
Specifications:
Foundations: Reinforced concrete perimeter spread footings, with columnar footings and engineered
foundations as required.
Structural Framing: Steel frame and open web steel mezzanine floor and ceiling joists.
Exterior Walls: Concrete tilt-up panels.
Interior Walls: Wood or steel stud framing for non-bearing partitions; demising walls of concrete
block or fire proof framing. Taped and drywall gypsum board, painted in finished
areas. Unfinished interior walls in shop.
Ceiling Finish: Drop ceiling of t-bar, with inset acoustic tiles, fluorescent lighting, and HVAC grills
(finished areas only).
Flooring: A combination of ceramic tile, vinyl flooring, and carpeting per tenant specifications.
Unfinished in shop areas.
Roofing: Flat roof, with waterproof membrane roofing, three inch insulation, four and a half
inch metal decking; drainage.
Plumbing: Building service connection, adequate plumbing throughout, with two-piece
washrooms on the main level and for each finished mezzanine. Exterior hose bibs and
landscape irrigation.
Electrical: Individual service connection. Adequate wiring throughout, with lighting by
fluorescent, incandescent and metal vapour lighting, per tenant requirements.
Security: Fire sprinklered construction.
Heating and Cooling: Gas service connection, central high efficiency boiler, nine zones. Office areas provide
roof mounted HVAC units, with ducting and separate controls.
Doors and Windows: Prefinished metal sash thermopane windows throughout, with matching, prefinished
commercial storefront. Interior doors and windows per tenant requirements and code.
12 foot × 12 foot (3.66 m × 3.66 m) insulated metal sectional overhead doors.
Yard Improvements: The bulk of the site will be paved, with soft landscaping featured along the south,
Spoke Avenue elevation. Soft landscaping also in north west corner. Concrete curb
and bumpers, with exposed aggregate concrete walks.
Age and Condition: Building will be new on completion, with materials, workmanship, and design
presumed to meet or exceed the market standard.
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Highest and Best Use
The highest and best use of real property as defined in The Appraisal of Real Estate, 3rd Canadian Edition,
2010, is:
The reasonably probable and legal use of vacant land or an improved property that is legally
permissible, physically possible, appropriately supported, financially feasible, and that results
in the highest value.
The vacant site is approximately 0.95 acres (0.38 hectares) in size, with dimensions of 117 feet (35.66 m) by
355 feet (108.2 m), more or less. Configuration of the rectangular site is sufficient to accommodate a variety of
development scenarios. Access and egress involving the site primarily entails Spoke Avenue, with an easement
to be provided across the property to the north, according to the land purchase agreement. Soil conditions are
assumed to be adequate for development. We are unaware of any adverse environmental constraints. Full utility
servicing is available in the area. In physical terms, the property is suited for a variety of uses that can be
accommodated by the particular site dimensions.
The property is zoned light industrial and bears an industrial use designation. It is unlikely that material changes
to the land use controls could be achieved, given the recent rezoning to the property and the particular
requirements of the Official Community Plan. This appraisal assumes that there are no titular limitations that
materially affect utility.
The property lies in an area zoned for industrial purposes, and there are a number of light industrial sites in the
area. Recent development in the area involves a variety of single level plus mezzanine steel frame, concrete tilt-
up structures, many contemplating multi-tenant use. The multi-tenant use aspect apparently reflects a limited
demand for large tenancy space.
Rental rates in the Townsville Industrial area are sufficient to retire the costs of construction and provide a net
return to the land. As is demonstrated by the recent development pattern, industrial development is feasible in
this market, given appropriate designs, prudent construction management and a proper marketing and lease-up
program.
On the basis of the foregoing, highest and best use of the site is concluded to be for industrial purposes, pursuant
to the applicable I-1 zoning schedule, with development as market conditions permit.
The proposed development entails a single, warehouse type building with a footprint of approximately 17,781
square feet (1,651.9 m2). The area proposed for mezzanine buildout will vary according to tenant requirements.
The construction drawings show 2,352 square feet (218.5 m2) of mezzanine buildout, while the developer
contemplates a higher level of 5,000 square feet (464.5 m2), with the ultimate buildout determined by the market
(and of course subject to City of New Town requirements).
The proposed building is oriented along the extreme west side of the site, thus providing the maximum area
along the east side for transportation, loading, and parking. The proposed development provides 41 parking
stalls, approximately 1.8 stalls per 1,000 square feet of building. This ratio is in excess of that required by New
Town zoning bylaw (1 stall per 1,000 square feet) and will provide the typical unit with 4.6 stalls. This level of
parking is attractive, and will facilitate demand for the additional office buildout.
The proposed development appears to lie near the maximum practical level achievable by the site. The
warehouse design is of a front loading characteristic that, while less desirable than a rear loading situation for
many tenants, reflects the local market pattern. Bays are relatively wide, at 32 feet (9.75 m), with a depth of
approximately 60 feet (18.29 m). This configuration permits a useful showroom/office area on the main floor
and facilitates an expansive second floor mezzanine, while permitting clear height shop area throughout the depth
of the various units.
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On the basis of the foregoing, the proposed design appears to reasonably reflect highest and best use of the site.
The proponent contemplates developing the project on a rental basis, with initial strata subdivision to facilitate
long-term asset management. Rental projects are finished somewhat differently for sale strata units, in that
materials are incorporated that reduce life cycle maintenance costs in a rental property. For an ownership
property, appearance and finish may be more important. The proposed development contains a relatively
efficient hot water heating system, with individual roof mounted HVAC units for the finished areas.
Valuation
The proposed development contemplates a rental situation, with potential strata title subdivision as market
conditions permit and the owner wishes. The appraisal for development financing purposes of a property of this
nature has four valuation aspects:
1. Value of the underlying land is required to confirm initial equity.
2. An estimate of reproduction costs for the development is in order to help evaluate project feasibility.
This analysis is completed under the heading “Cost Approach”.
3. As a rental project, the property will appeal to investors primarily due to its ability to generate and
sustain rental income. The income potential of the property, as a single holding is evaluated under the
heading “Income Approach”.
4. Strata title properties typically trade on the basis of comparison with other individual strata title units.
This aspect of the property is analyzed using the direct comparison approach. As a check on the income
analysis, a direct comparison analysis of the property as a rental investment is completed.
The first step in our analysis is valuation of the underlying land.
Land Value
An appraiser may value land that is vacant and available for development in various ways:
direct comparison
allocation
extraction
income capitalization
1. direct capitalization techniques
land residual
ground rent capitalization
2. yield capitalization techniques
discounted cash flow analysis (subdivision development analysis)
Of these, direct comparison is the most compelling, relating current market activity to the site under appraisal.
Allocation, employed when comparable sales evidence is scarce, relies upon a typical land-value-to-property-
value ratio. Extraction, a variety of abstractions, deducts the depreciated value of the buildings from a sale price
to indicate vacant land value. The direct capitalization techniques entail the capitalization of income from a single
year of property operation. Land residual relies on an allocation of net revenue from an improved property into
its component parts of first, the building, and secondly by residual, the land. Ground rent capitalization converts
net lease payments into capital value. The yield capitalization technique explicitly recognizes time value of
money considerations. Subdivision development applies to undeveloped acreage where a potential urban
development represents the highest and best use of the land. The analyst considers cash flows over the
construction and the marketing stages.
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Where sufficient data is available, the method of choice to ascertain the market value of land as if vacant and
available for development is direct comparison, a comparative analysis of transactions involving more or less
similar properties and market conditions. We surveyed the New Town and Motts area for evidence of recent
sales, listings, or offers to purchase on properties that provide useful benchmarks of value for the subject
property. Data located includes the following:
1. White Street, New Town
Lot 3, Section 18, Township 16, Plan LMP16962
Lot Size - 98 164 = 16,072 square feet
Zoned - M-5
Sold - March 2009 (agreement) for $130,000 or $8.09 per square foot
Serviced site on west side of street, between Moss and Pitt Road.
2. Spoke Avenue, New Town
Lot B, Section 18, Township 16, Plan 81332
Lot Size - 1.11 acres; 48,352 square feet
Zoned - M-1
Sold - January 2010 (closed) for $262,500 or $5.43 per square foot
Situated between Ace Road and Spade, north side of street, gravel and fenced yard.
3. Industrial Way, New Town
Lot 5, Section 3, Township 16, Plan LMP10068
Lot Size - 2.64 acres; 115,000 square feet
Zoned - M-2
Sold - February 2010 (closed) for $500,000 or $4.35 per square foot
West end of Industrial Way, near the international boundary, level, graded and gravel surface.
4. Avon Avenue, West of Hume Road, New Town
Lots 46 - 48, D.L. 207, Plan 62080
Lot Size - 1.62 acres; 70,567 square feet
Zoned - M-3
Sold - July 2010 (closed) for $345,000 or $4.89 per square foot
New Town Industrial Park. Fenced and gravelled yard. Property used for storage of forestry
products.
5. 34333/4 Demon Road, New Town
Lot 28, Plan 62376 and Lots C & D, Plan LMP08613, Sec. 3, Tp. 16
Lot Size - 7.0 acres; 304,920 square feet
Zoned - M-2
Sold - November 2010 (closed) for $1,236,000 or $4.05 per square foot
Three lot assembly, filled and built-up, fenced and with small office (improvements assessed at
$23,000). In use as a transport facility and storage yard; purchased by ABC Trucking Ltd.
6. Progressive Way, New Town
Lot 12, Section 24, Township 13, Plan LMP4254
Lot Size - 1.75 acres; 76,230 square feet
Zoned - M-3
Sold - April 2011 (closed) for $400,000 or $5.25 per square foot
Level site in newly developing industrial park east of Simons Road.
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7. McIntosh Road, one block west of Highway 40, New Town
Part of Lot 37, D.L. 207, Plan 52644
Lot Size - 1.75 acres; 76,230 square feet
Zoned - M-3
Sold - May 2011 (closed) for $325,000 or $4.26 per square foot
Good access, fenced, gravelled yard in use as storage yard, level.
8. 31060 Pitt Road, New Town
(a) West 117.5 feet of Lot 3, NE Section 13, Township 13, Plan 2920
Lot Size - 2.0 acres gross; 1.91 acres net (83,200 square feet)
Zoned - A1, now I-1
Sold - February 2007 (closed) for $350,000 or $4.21 per net square foot
Sold - December 2010 (closed) for $475,000 or $5.71 per net square foot
Level, serviced development site, also with frontage on Spoke Avenue, now subdivided.
(b) Lot 2, Section 13, Township 13, Plan LMP31585
Lot Size - 0.95 acres; 41,535 square feet
Offer - August 2011 (to close Oct. 2006) for $280,000 or $6.74 per square foot
South half of (a): purchaser intends to construct a nine bay industrial warehouse building.
9. 30921 Pitt Road, New Town
Lot 3, Section 24, Township 13, Plan 80917
Lot Size - 0.872 acres; 70 frontage 542
Zoning - M-3, designated industrial
Listed since 2009, now at $390,000 or $10.27 per square foot
Offer at $340,000 or $8.95 per square foot, to close September 2011
Narrow site, adjacent to proposed road, offer not closed due to financing.
10. 2030 Panorama Crescent, New Town
Lot 339, Section 18, Township 16, Plan 47319
Lot Size - 109 200 = 21,800 square feet
Zoned - M-1, general industrial
Available since July 2011 for $174,500 or $8 per square foot
Serviced lot, near freeway exchange.
11. Bend Highway, two blocks west of Simons Road, New Town
Part of Lot 12, Section 23, Township 13, Plan 44494
Lot Size - 4.08 acres (177,725 square feet); 595 feet frontage
Zoned - I-3 (Development Permit area)
Listed - September 2011 for $670,000 or $3.77 per square foot
Serviced industrial site near New Town airport, services near, treed.
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Summary
Index Date Zoning Size - Sq.Ft. Price Price/Sq.Ft.
1 3/09 M-5 16,072 $130,000 $8.09
2 1/10 M-1 48,352 262,500 5.43
3 2/10 M-2 115,000 500,000 4.35
4 7/10 M-3 70,567 345,000 4.89
5 11/10 M-2 304,920 1,236,000 4.05
6 4/11 M-3 76,230 400,000 5.25
7 5/11 M-3 76,230 325,000 4.26
8 a 2/07 A-1 83,200 350,000 4.21
12/10 I-1 475,000 5.71
b (subject) 8/11 I-1 41,382 280,000 6.74
9 List M-3 37,984 390,000 10.27
Offer 340,000 8.95
10 List M-1 21,800 174,500 8.00
11 List I-3 177,725 670,000 3.77
Analysis
We have presented evidence on eleven industrial zoned properties in the New Town area, which includes three
listings for contemporary reference. Expressed in terms of price per square foot, values range from $3.77 to
$10.27, with the extremes represented by current listings. Included within the data is Index No. 8, representing
the subject data described earlier.
Index No. 1 entails a nearby White Street location. This small 16,072 square foot site sold over two years ago
at $8.09 per square foot. This property is considered a useful indicator for the subject; however,
it requires a negative adjustment for the difference in site size.
Index No. 2 entails a Spoke Avenue site east of the subject. This site is approximately one acre in size and
sold in January 2010 at $262,500, approximately $5.43 per square foot. An upwards adjustment
is in order for the subject site due to its somewhat smaller size and the passage of time.
Index No. 3 entails a 2.64 acre site on the west end of Industrial Way, near the international boundary. This is
a generally inferior industrial location. The property sold at $4.35 per square foot, a rate
considered low relative to the subject.
Index No. 4 is an Avon Avenue site in the inferior, New Town Industrial Park near the New Town/Old Town
Highway. The particular property is improved with a fenced and gravel yard and had been used
for the storage of forest products. Again, the rate of $4.89 per square foot shows as inferior to
the subject.
Index No. 5 is a three lot seven acre assembly in an inferior location. The rate of $4.05 per square foot
requires upward adjustment for size and setting.
Index No. 6 is a level site in the newly developed industrial park east of Simons Road near the subject. This
1.75 acre site sold in spring of 2011 at $5.25 per square foot, approximately $229,000 per acre.
Adjustments due to size and location bring this unit rate up.
Index No. 7 is a McIntosh Road location one block west of Highway 40, in the New Town Industrial area.
This site requires adjustments similar to those of Index No. 4, and for similar reasons.
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Index No. 8 is the subject data described earlier, and included here for ease of reference. The current
transaction represents an arms-length arrangement and is subject to conditions that are, for the
most part, characteristic of the market. The transaction includes consideration for the easement
over the adjacent site.
The remaining three properties represent current listings.
Index No. 9 is a relatively small site of some 70 feet of frontage and 542 feet of depth. This will be a difficult
site to fully develop due to its width. The property has been on the market for an extended period
of time, and was most recently available at $10.27 per square foot. There is a current offer at
$8.95 per square foot; however, due to difficulty with financing, the closing has been delayed.
The property has potential commercial exposure. Although physically located near the subject, it
requires several adjustments due to shape and potential.
Index No. 10 is a property on Panorama Crescent that is presently on the market at an asking price of $8 per
square foot. The asking rate for this one half acre site requires an adjustment for time and the
negotiation margin inherent in asking prices.
Index No. 11 entails frontage on the Bend Highway, two blocks west of Simons Road. This 4.08 acre site lies
west of the subject near the New Town Airport. The property has been available on the market
for some time. The owner is Ready Sausage Company. This data is considered to reflect an
inferior situation relative to the subject.
The bulk of data within this analysis is concluded to be inferior to the subject. Indicators considered to reflect the
low end of value include Indices No. 2, No. 3, No. 4, No. 5, No. 6, No. 7, the dated sales involving the subject
of Index No. 8a and No. 11. Indicators concluded to reflect the higher limit include Index No. 1 and the current
listings of Index No. 9 and No. 10. On the basis of the foregoing, and recognizing the contribution of the
easement, value for the subject land is seen to lie in the order of $6.50 to $7.50 per square foot of land. We note
that the present agreement for the land falls readily in this range and conclude value at the $7 per square foot
midpoint of the range.
0.95 acres 43,560 square feet $7 per square foot = $290,000 (rounded)
Cost Approach
We estimated the reproduction cost new of the subject improvements using the Marshall and Swift Valuation
System. This system utilizes known costs of construction for similar buildings with adjustments made for
variances found using unit in place costs. Adjustments can be made for overall quality. In the absence of detailed
specifications, because of the market niche sought (upper end of the industrial rental market, small bays) we
assumed average quality construction, and adjusted for the ceiling height, mezzanine buildout, site
improvements, and the heating and cooling systems. We relied on developer supplied data for off-site costs (net)
and development cost charges.
In addition to direct costs for materials and labour, allowances must be made for related hard costs such as
building bonds and permits, contractors' overhead and profit, and temporary power. These costs are largely
included in the estimates produced by the Marshall and Swift System. Indirect costs included in the Marshall and
Swift System include design costs, some professional fees, interest and property taxes during construction of the
building component only, insurance on the building component and the like. Indirect costs excluded include
marketing costs and development profit.
The cost estimates set out below have been completed for valuation purposes and lack the accuracy of a more
detailed method, such as quantity survey.
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COST ESTIMATE FOR: Industrial Business Park
DATE OF SURVEY: September, 2011
DESCRIPTION:
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OCCUPANCY: STORAGE WAREHOUSE
FLOOR AREA: 17,781 Square Feet AVERAGE STORY HEIGHT: 24.8 Feet
CLASS: D Frame EFFECTIVE AGE: 0 Years
COST RANK: 2.0 Average CONDITION: 6.0 Excellent
NUMBER OF STORIES: 1.0 COST AS OF: 09/11
EXTERIOR WALL:
Tilt-up Concrete....................... 100%
HEATING AND COOLING:
Hot Water............................... 78%
Package Heating & Cooling......... 22%
OTHER FEATURES:
Sprinklers Serving 17,781 Square Feet
Office Mezzanine
UNITS COST TOTAL
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BASIC STRUCTURE COSTS: 17,781 57.19 1,016,895
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EXTRAS:
Paving, Asphalt................................. 20,000 3.27 65,400
Paving, Concrete................................ 3,000 5.99 17,970
Parking Lot Lighting........................... 23,000 0.33 7,590
REPLACEMENT COST NEW............... 1,107,855
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Cost Data by MARSHALL and SWIFT
Summary of Cost Approach
Land $290,000
Construction (per Marshall and Swift) $1,107,855
Total Direct Costs $1,397,855
Soft Costs
Marketing (per realtor quote) $42,000
Land taxes during construction $2,000
Interest and financing (per bank quote) $79,000
Total Soft Costs $123,000
Total Direct Cost to Developer $1,520,855
Profit @ 10% $152,085
Total Developer's Costs $1,672,940
Rounded to: $1,673,000
Our analysis of development costs totals to $1,673,000, including a developer's profit and fee allowance of 10%
or $152,085. The developer provided a copy of the current project budget, which shows costs of $1,575,000,
inclusive of land at $280,000. This sum is approximately $98,000 less than our conclusion ($1,673,000 -
$1,575,000). The developer's analyses excludes all engineering and design costs, and this contributes to part of
the variance. Given the margin of uncertainty inherent in appraisal cost analysis, we conclude that the variance
with the developer's estimate is not material.
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Income Approach
The first step in the income approach involves establishing the market rent that the property can sustain on an
ongoing basis in its marketplace. In the absence of established leasing on the proposed development, we
surveyed the local marketplace, with the following rental evidence presented for illustration purposes.
1. Unit 4A, 33733 Queen Road, New Town
A 14-year old concrete block building, relatively plain, with front parking and loading, limited
finishes, poor mezzanine buildout potential. Woodworking tenant occupies 4,000 square feet paying
$5.40 per square foot as at January 2011; $1.56 per square foot in occupancy charges.
2. Unit 2, 2979 McIntosh Road, New Town
A 20-year old M-1 zoned strata industrial building, 19,000 square feet overall, 25 parking stalls,
approximately 6,000 square feet leased July 2011 at $5.85 per square foot, plus $1.92 per square
foot in taxes.
3. Unit 5, 30856 Pitt Road, New Town
A one-year old 15,700 square foot I-2 zoned building, single-storey with front loading and
mezzanine potential. Three-phase power, 3,472 square feet available (can be subdivided as two
units) September 2011 at $8 per square foot, plus $1.50 per square foot in occupancy charges.
Automotive oriented centre.
4. 31272 Pitt Road, New Town
Two-year old I-1 zoned strata industrial building, tilt-up concrete, three-phase power, front
parking, two bays of 1,500 and 2,000 square feet available September 2012 on a shell basis at
$4.75 per square foot, plus $1.30 per square foot in additional rent. Five parking stalls per unit.
5. 31314 Pitt Road, New Town
Lane Industrial Park
New multi-tenant industrial development. Three-phase power, front loading and parking. Asking
rents commence at $4.95 per square foot on a shell basis as at September 2011, I-2 zoned.
6. 205 - 2316 McIntosh Road, New Town
A 17-year old two-storey building, New Town Professional Building, 960 square feet and second
floor office space, with offices and board room. Asking $9 per square foot, plus $4.78 per square
foot for additional rent. Leased as is, May 2011, C-3 zoning.
7. 31212 Pitt Road, New Town
I-2 zoned 12-year old building, corner at Ace Road, 2,250 square foot offices available with
existing tenant improvements, air conditioning, and parking. Available September 2011 at $8.50
per square foot, plus $4.18 per square foot in occupancy costs.
8. 2669 Beacon Street, New Town
A 16-year old office/warehouse structure known as the WASAP Building, 16,885 square feet
overall, 35 parking stalls (2.07 stalls per 1,000 square foot of building). Entire building available
September 2011 at $6.40 per square foot, plus occupancy costs. A higher rate presumably required
in a multiple tenant situation.
9. 31272 Pitt Road, New Town
M-1 zoning. A 7,297 square foot assembly of three strata warehouses offered for lease at $4.50 per
square foot warehouse and $6 per square foot showroom, 11 parking stalls (1.5 stalls per 1,000
square foot of building), forced air heat, three-phase power.
Case Study: Appraisal of a Strata Industrial Property
13
10. 2609 Progressive Way, New Town
M-3 zoned site nearing an acre in size. Improved with 22,940 square feet (22,600 square feet
rentable), three-year old tilt-up concrete industrial building, 15,300 square feet of warehouses (22
feet clear height), 7,300 square feet of office space, with air conditioning, grade and dock loading.
Offered for sale September 2011 with reported $121,000 net income or $5.35 per square foot
average, 1,600 square feet of office space at $7 per square foot net was leased April 2011.
Analysis
As the evidence shows, rental rates for industrial zoned properties in New Town vary with the overall size of the
unit, availability of parking, extent of office buildout, the age of the property, and the general quality and appeal
of the building. Rental rates in the foregoing data ranges from $4.50 per square foot to $9 per square foot, with
the highest rate associated with a commercial zoned office property. The highest rate associated with industrial
zoned property is $8.50 per square foot.
Index No. 1 is a 14-year old concrete block industrial building having relatively plain finishes and in a
somewhat isolated industrial area of New Town. A woodworking shop occupied 4,000 square
feet of space at $5.40 per square foot, net as at January 2011. Occupancy charges bring the gross
rent up to approximately $7 per square foot.
Index No. 2 entails a 20-year old strata industrial building on McIntosh Road. A relatively large, 6,000 square
foot tenancy was reportedly leased in July of 2011 at $5.85 per square foot, plus approximately
$1.92 per square foot in taxes.
Index No. 3 involves a Pitt Road location west of the subject. A one-year old, 15,700 square foot building is
located on an I-2 zoned site, and features front loading with mezzanine buildout potential. 3,472
square feet is available (two bays) at a rate of $8 per square foot. This is an automotive oriented
centre. Typically this type of centre will achieve higher rates, particularly with relatively low site
coverage (providing extra parking and site storage) or significant commercial exposure.
Index No. 4 is a two-year old strata industrial building located east of the property on an I-1 zoned site. Space
is available within this property on a shell basis (i.e., without tenant finishes), at $4.75 per square
foot, plus approximately $1.30 per square foot in additional rent.
Index No. 5 is another Pitt Road location, also east of the subject. The Lane Industrial Park is a large project
with units oriented both to Pitt Road as well as onto a central court yard. This is a front loading
design. Rental rates on a shell basis commence at $4.95 per square foot.
Index No. 6 is a two-storey office building known as the New Town Professional Centre. A 960 square foot,
second floor office tenancy was offered at $9 per square foot, with additional rent nearing $5 per
square foot. The property was successfully leased.
Index No. 7 is a 12-year old industrial building at Pitt Road and Ace Road. The 2,250 square feet of offices
with existing tenant improvements is available September 2011 at $8.50 per square foot, plus
$4.18 per square foot. This is a particularly useful indicator in that the property is zoned I-2 and
lies near the subject.
Index No. 8 is a 16-year old office building located on Beacon Street in New Town. This is a relatively large,
16,885 square foot building, available on a single tenancy basis at $6.40 per square foot. The
property presently holds a number of relatively, small short-term tenancies that must be relocated
for single-tenancy.
Case Study: Appraisal of a Strata Industrial Property
14
Index No. 9 is a Pitt Road location east of the subject. Shell warehousing space is presently available at $4.50
per square foot, with partially fitted out space (suitable for showroom space) available at $6 per
square foot. Parking is available at a rate of 1.5 stalls per 1,000 square feet of building. The
space lacks air conditioning.
Index No. 10 entails a Progressive Way location at and M-3 zoned site. The property is presently available for
sale with a reported income nearing $5.35 per square foot on average; adjusting for vacancy, bad
debt and maintenance expenses will lead to a slightly higher indicated rate. 1,600 square feet of
office space in the building was offered earlier this year, and has subsequently been leased. The
rental rate involved was $7 per square foot.
Estimating the achievable rental rates for the subject is complicated by the lack of details available with respect
to mezzanine buildout and tenant improvement requirements. Although the developer contemplates 5,000 square
feet of mezzanine space, with a particular layout that orients the finished space above the front entry, individual
units may possess a greater or lesser area of buildout. As well, the extent of buildout on the main floor, beneath
a mezzanine cannot precisely be ascertained. The developer contemplates an expenditure on tenant improvements
allowance to average $25,000 per unit or $225,000 for the nine units.
We evaluated the rentable potential for the property using two approaches. First of all, on a net effective rental
rate basis, where the tenant is responsible for all costs of tenant improvements, the achievable rental rate will lie
in the order of $5 per square foot, a rate well supported by the market data, recognizing the advantageous
parking arrangement, the efficient layout, with respect to second level office space on either end unit, the
easement over adjacent lands, and the efficient hot water heating system that will reduce tenant operating costs.
On the basis of a typical net effective rent of $5 per square foot, we can then add for typical amortization tenant
improvements (tenant improvements are typically amortized over the life of the lease, since many tenants have
improvement requirements specific to their needs). The cost of amortizing $225,000 of tenant improvements
($25,000 x 9) at a 10% interest rate over a typical five year lease term is $59,354 per year. On the basis of the
anticipated buildout of 22,781 square feet, the average cost per square foot per year is $2.60, in rounded terms.
Adding this sum to the $5 per square foot average net effective rent shows typical rent for the project at $7.60
per square foot. However, this indicator actually provides a “shell” rent to the landlord that exceeds $5 per
square foot, due to the residual value of tenant improvements. We regard this indicator as setting the high limit
of rent.
Alternatively, the rental rates for the project can be evaluated using the face rents commonly found in the
market. In this facet of the analysis, we concluded finished space in the main level will likely be identical to that
of the second level, providing total buildout in the order of 10,000 square feet, approximately 44% of a 22,781
square foot building. This is a high buildout and, in conjunction with the superior parking layout, ready access
through the site, and overall design, will attract premium rents relative to an existing market where much of the
turnkey space available was prepared at the specification of a tenant, and represents used space. We selected an
average rental rate for the project at $7 per square foot. This rate reflects an average situation, and will be less
than achievable for fully finished main floor or second floor space and more than basic shop space within the
project can achieve. Since this rental rate correlates reasonably well with that calculated through the preceding
analysis of net effective rental rates, we settled on a rate of $7 per square foot for our analysis. The resulting
estimate of net operating income follows:
Case Study: Appraisal of a Strata Industrial Property
15
Revenue Potential
Rental Revenues - Assume 22,781 square feet GLA @ $7 per square foot, net $159,467
Less: Vacancy and bad debt. A new project with materials, workmanship and design
assumed to meet or exceed the market standard; say 5% or (7,973)
Effective Gross Income $151,494
Less: Operating Expenses. Fully net leasing assumed in the estimated market rental
rate, with the vacancy and bad debt allowance inclusive of lost operating
cost recoveries; landlord responsibilities limited to structural repair and
maintenance, typically a modest cost for new construction, say (2,000)
Stabilized Net Operating Income $149,494
The next step in our analysis involves selection of an appropriate overall capitalization rate. To this end we
surveyed the investment property marketplace, with the following evidence selected for presentation purposes.
1. 13280 Coombs Way, Arkville
Lot A, Southeast 1/4 Section 20, Tp. 2, Plan LMP 1624
Lot Size - 270' 366' = 98,820 square feet or 2.269 acres
Zoned - I-G
Sold - October 2009 for $2,315,000
Nine-year old warehouse complex. Reportedly 52,800 square feet in two buildings. 20 foot ceiling
height, with alarm system. Owner was prepared to lease back at a reported net income of $235,000
per annum.
Overall Rate - 9.3% (adjusted)
Price/Sq.Ft. of Building - $44 (FSR - 0.53)
2. 24777 Bend Highway and 3813 - 240th Street, Hoopsville
Lot 19, Northeast 1/4, Section 27, Tp. 10, Plan 2648 and
South ½ of Lot 36, Section 27, Tp. 10, Plan 2648, Exc. Plan 51892
Lot Size - Lot 19 - 51.482 acres
- Lot 36 - 52.120 acres
3.602 acres
Zoned - M-1
Sold - November 2009 for $1,050,000
Improved with old house on one lot, and 19,000 square foot warehouse building (including 4,000
square feet of offices on two levels). Vendor leased the property back at $96,000 per annum.
Overall Rate - 8.5% (adjusted)
Price/Sq.Ft. of Building - $55 (FSR - 0.12)
3. 61-63 Steam Street, Rivertown
Lot 50, D.L. 22, Plan 55503
Lot Size - 2.66 acres
Zoned - M-1
Sold - August 2010 (closed) for $2,925,000 - offer at $3,050,000 but with a $125,000 adjustment
for roof repairs.
A tilt-up concrete warehouse/office development of 67,3305 square feet, dock loading with
levellers, rail, 24 foot ceilings, air conditioned offices, two tenants, reported net income of
$280,000.
Overall Rate - 8.8% adjusted (9.2% after allowance for roof repairs)
Rate/Sq.Ft. of Building - $45 (F.S.R. - 0.58), prior to adjustment for roof repairs.
Case Study: Appraisal of a Strata Industrial Property
16
4. Cliff Avenue, Runtown
(a) Lot 181, D.L. 312/351, Plan 72591
3.1 acre site improved with 51,840 square feet rentable industrial building, 5,900
square foot offices, 22 foot ceiling, 42 parking stalls, constructed 1987 with
major addition in 1978. Single tenant paying $4.50 per square foot to June 2013. Air-
conditioned.
(b) 841 Gravel Way
Lot 144, D.L. 351, Plan 58191
5.94 acre site improved with 99,609 rentable square feet industrial building.
Constructed in 1980, 238 clear, rail service. Single warehouse tenant paying $4.25 per
square foot to December 30, 2010, then $4.50 per square foot to December 31, 2012.
3,004 square foot mezzanine offices.
(c) 890 Gravel Way
4.36 acre site improved with 92,753 rentable square foot industrial building, 238 clear
ceiling, 1994 construction, 1,700 square foot of mezzanine office; good condition but
needs new roof at estimated cost of $300,000. Single tenant paying $4.50 per square
foot to June 2014.
Assembly of three properties sold by Sure Life to Tom Smith; 13.4 acres and 244,202
square feet of building overall. Adjusted net income of $1,043,964 (4% vacancy, 1%
structural maintenance as at January 1, 2011). Vendor estimated 10 year purchaser
IRR with zero inflation at 9.5%.
Sold - September 30, 2010 (closed) for $10,350,000
Indicated Overall Rate - 9.8% (adjusted for repairs).
Price/Sq.Ft. Buildable - $44 adjusted for repairs (0.42 F.S.R.)
5. 20089 - 192A Avenue, Linktown
Lot 5, Section 35, Township 8, Plan 81873
Lot Size - 0.55 acres; 98.43 feet of frontage
Zoned - Industrial
Sold - October 2010 (agreement) for $722,000
Single-level wood frame building custom built, ABC Ambulance Station, 3,035 square feet. Lease
expires June 2010. Reported annual income from net lease of $63,920 at time of sale.
Indicated Overall Rate - 8.4% (adjusted)
Price/Sq.Ft. of Building - $238 (0.13 - F.S.R.)
6. 13680 Bridge Road and 3260 King Way, Richville
Lot 23, Section 9, Block 5 North, Range 5 West, Plan 51368, South and East Bylaw Plan 65621
Site Size - 3.49 acres
Zoned – I-2
Sold - December 2010 for $4,775,000
A two-building warehouse/office development, 20-years old, total floor area of 65,5645 square feet,
basic unit size of 3,600 square feet, dock loading, 18 foot ceilings, fully leased at $461,000 per
annum net.
Overall Rate - 9.1% adjusted
Rate/Sq.Ft. of Building - $73 (F.S.R. - 0.43)
Case Study: Appraisal of a Strata Industrial Property
17
7. 11460 Gauge Way, Richville
Lot 350, Section 25, Block 5 North, Range 6 West, Plan 62645
Lot Size - 1.275 acres
Zoned – I-4
Sold - January 2011 for $2,025,000
A 31,0005 square foot industrial building with a reported net income of $180,833 per annum.
Overall Rate - 8.9%
Rate/Sq.Ft. of Building - $65 (F.S.R. - 0.56)
8. 5700 - 6100 King Drive, Burnsville
Lot 113, D.L. 130, Plan 47649
Lot Size - 7.64 acres (332,7985 square feet)
Zoned - CD under the M-1 and M-5 designations
Listed - February 2011 for $7,500,000, reported offer in place within 5% of the asking price or
$7,125,000.
A three building warehouse/office development, areas of 48,848 and 33,800 square feet for the two
west buildings, east building of 42,950 square feet - 125,5985 square feet total (18.2% office), 24
foot height, nominal excess land, three tenants at $651,804.40 per annum net.
Overall Rate - 8.8% adjusted for the offer, 8.4% for the listing
Rate/Sq.Ft. of Building - $57 (offer) F.S.R. - 0.38
$60 (listing)
9. 7453 Professional Way, Runtown
Lot B, D.L. 129, Plan 72215
Lot Size - 2.40665 acres
Zoned - I-2
Offer - February 2011 for $3,300,000
A one-storey non-basement tilt-up concrete warehouse/office of 52,2505 square feet, age of 7
years, leased at $300,000 per annum from December 1, 2008 to November 30, 2011 at $300,000
per annum net, lessee has the option to purchase and this has been exercised.
Overall Rate - 8.7%
Rate/Sq.Ft. of Building - $63 (F.S.R. - 0.50).
10. 10101 North Court, Runtown
Lot 13, D.L. 119, Plan LMP 596
Lot Size - 3.0 acres
Zoned - I-2
Option - to be exercised by November 30, 2011 at $3,125,000
A new tilt-up concrete building of 53,4255 square feet, 8,800 square feet of two-storey office,
45,415 square feet of 24 foot clear warehouse, approximately 0.75 acres of surplus land, leased to
one tenant at $293,604 per annum net from December 2010 to November 2014, 2 further 5-year
terms at higher rents.
Overall Rate - 9.0% adjusted
Rate/Sq.Ft. of Building - $58 (F.S.R. 0.41).
Case Study: Appraisal of a Strata Industrial Property
18
11. 3175 Hume Road, New Town
Lot 49, Section 22, Township 16, Plan 62080
Lot Size - 0.5 acres or 21,780 square feet
Zoned - I-2
Listed since June 2011 for $1,062,000
13,000 square feet of warehouse and office, 38% finished, good tenant improvements, full
sprinklers, constructed in 2003/04. Three-phase power, 15 parking stalls (1.2 stalls per 1,000
square feet of building), 24 feet ceilings, owner-occupied.
Price/Sq.Ft. of Building - $82 (0.6 - F.S.R.)
12. 2609 Progressive Way, New Town
Lot 8, Section 24, Township 18, Plan 4254
Lot Size - 1478 2 3028 = 44,394 square feet
Zoned - M-3
Listed since January 2011 for $1,395,000
Level site near airport, 22,940 square feet (22,600 square feet rentable), concrete two level
building, three-phase power, grade and dock height loading. Air conditioned offices, 32% (7,300
square feet) finished office space to a good standard, $121,000 reported net income, 22 foot clear
ceilings.
Indicated Overall Rate - 8.7% (at reported net income)
Price/Sq.Ft. of Building - $61 (0.52 - F.S.R.)
Summary
Building Site/ Overall
No. Date /Sq.Ft. Sq.Ft. FSR Price $/Sq.Ft. Rate
1 10/09 52,800 98,820 0.53 $2,315,000 $44 9.3
2 11/09 19,000 156,903 0.12 1,050,000 55 8.5
3 8/10 67,330 115,870 0.58 2,925,000 45 8.8
4 9/10 244,202 583,704 0.42 10,350,000 44 9.8
5 10/10 3,035 23,958 0.13 722,000 238 8.4
6 12/10 65,564 152,024 0.43 4,775,000 73 9.1
7 1/11 31,000 55,321 0.56 2,025,000 65 8.9
8 2/11 125,598 332,798 0.38 7,125,000 57 8.8
9 2/11 52,250 104,831 0.50 3,300,000 63 8.7
10 Current 53,425 130,680 0.41 3,125,000 58 9.0
11 List 13,000 21,780 0.60 1,062,000 82 -
12 List 22,940 44,394 0.52 1,395,000 61 8.7
Subj. 9/11 22,781 41,382 0.55 - - -
Analysis
We presented evidence on 10 sales involving industrial properties situated in a variety of suburban locations.
Two listings are included for contemporary reference. One of these involves an owner-occupied property,
included for later reference in the direct comparison analysis. Overall capitalization rates shown range from
8.4% to 9.8%, with the majority of data in the vicinity of 9%.
Index No. 1 is a nine-year old warehouse complex containing two buildings having a 20 foot storey height.
This property traded in October 2009 at a rate of 9.3%, on the basis of a partial owner lease
back.
Case Study: Appraisal of a Strata Industrial Property
19
Index No. 2 is a two building Hoopsville property. The property traded at an overall rate of 8.5%. In this
instance the improvements are relatively poor quality and the land value comprises a substantial
proportion of overall value. As a result, redevelopment is a medium term proposition, so risk is
relatively modest. The overall rate is considered less than appropriate for the subject.
Index No. 3 is a newer tilt-up concrete development in Rivertown. This 2.7 acre site traded at an adjusted
value of $2,925,000 during the summer of 2010. The overall rate was 8.8%; however, after the
allowance for the roof repair, the overall rate rose to 9.2%: it is appropriate to evaluate this sale
using the 8.8% adjusted indicator, since the owners net cost after the roof repairs is reflected in
this rate.
Index No. 4 is a three building property sale on Aviary Island. These are relatively standard industrial
buildings; however, they were sold by an institutional investor at an overall rate of 9.8% in
September of last year. Since these are older improvements, their ability to generate rental
increases is modest. As a result, the purchaser required a higher overall rate as compensation.
Index No. 5 involves a built-to-suit provincial government arrangement in the Pine Grove area of Linktown.
This a relatively small building of a good quality. The use required a substantial site area. The
property traded recently at an overall adjusted rate of 8.4%. This is a carefree situation for an
investor and a relatively inexpensive property, so the overall rate is less than achievable for the
subject.
Index No. 6 entails a two building Richville development that is approximately 20 years old. It is a multiple
tenant building with 18 foot ceilings and dock loading. The property traded at an overall rate of
9.1% at the end of 2010.
Index No. 7 is another Richville property. This 31,000 square foot industrial building reflected a relatively
high, 0.56 floor space ratio, and traded at an 8.5% overall rate in January of 2011.
Index No. 8 is a three building warehouse/office development in Burnsville. This relatively large property has
only three tenants and is regarded as a relatively carefree situation, save for risks inherent in
losing a tenant. The overall rate of 8.8% associated with the reported offer will lie reasonably
close to that achievable to the subject, subject to considerations for location.
Index No. 9 and Index No. 10
pertained newer buildings having a single tenant and located in Runtown. These properties depict
overall rates in the order of 8.7% to 9%. These are classic, carefree rental situations.
Index No. 11 is a 13,000 square foot warehouse and office building on Hume Road in New Town. The building
is about three years old and is reportedly well built. We included data on this owner-occupied
property for later reference within the direct comparison analysis.
Index No. 12 is a 22,940 square foot warehouse and office building in New Town. The building has a high
level of fit and finish. The asking price reflects an 8.7% overall rate. After adjustments for the
negotiation margin inherent in asking prices, a higher overall rate will emerge, based on the
present income.
The proposed subject development will be new. It is of a multiple tenant nature, in an area popular for industrial
activity. The site has good access characteristics.
On the basis of the foregoing, we conclude an appropriate overall rate for the subject situation will lie in the
order of 9% to 9.25%.
Case Study: Appraisal of a Strata Industrial Property
20
Value = Net Income
Overall Capita lization Rate
= $149, 494
$1, 661, 0440.09
= $149, 494
$1, 616,1510.0925
Average (rounded) $1,638,000
Direct Comparison Approach
As a rental property the proposed development will hold primary appeal due to its ability to generate rental
income. However, to complete our analysis of the rental aspect, we completed a direct comparison analysis. The
analysis makes reference to the industrial building sales data.
Given the disparities in building size, we analyzed these sales and listings using the price per square foot of
building unit of comparison. On this basis, these industrial buildings traded at rates ranging from $44 to $238
per square foot, with the latter rate associated with a special purpose ambulance station, Index No. 5.
Disregarding that indicator, the range of value is from $44 to $82 per square foot.
The subject space will be new, with a substantial (44%) finished space buildout, ample parking, air conditioning
and an efficient hot water heating system. This property is superior to the majority of the data, including Index
No. 1, No. 2, No. 3, No. 4, No. 8, No. 9, No. 10, and No. 12. Data concluded to reflect the upper limit for the
property included Index No. 5 and No. 11. Indices No. 6 and No. 7, at $73 and $65 per square foot are
concluded to reasonably reflect an appropriate range for the subject. As well, Indices No. 11 and No. 12 warrant
consideration. Both are current listings which however, entail new New Town locations. Index No. 11, which
shows value at $82 per square foot, has a similar level of buildout with a slightly higher floor space ratio and
lower parking. Index No. 12 has a lower level of buildout and floor space ratio. Ceiling heights are 22 feet.
Although neither Indices No. 11 or No. 12 provide a true multi-tenant physical comparison, the data is useful in
confirming our conclusions with respect to Indices No. 6 and No. 7. On the basis of the foregoing, we conclude
market value of the proposed development, as a unsubdivided rental holding at $70 per square foot of building,
showing value rounded to $1,595,000 (22,781 square feet × $70).
Market Value Conclusion – As a Rental Project
Our analysis of the property considered three distinct approaches, with the results having a reasonable degree of
consistency; the variance is less than five percent.
Cost Approach $1,673,000
Income Approach $1,638,000
Direct Comparison Approach $1,595,000
The cost approach is useful in depicting the cost to construct a substitute. However, properties do not trade on
the basis of the reproduction costs, particularly when designed for rental use. Similarly, the direct comparison
analysis offers useful insight; however, properties such as the subject tend not to trade on the basis of direct
comparison when rental is the primary motivation for development. Therefore, our conclusion to value relies
primarily on the income approach. On the basis of the foregoing, market value of the property as an
unsubdivided rental investment is concluded as at September 8, 2011 to be:
ONE MILLION SIX HUNDRED THIRTY EIGHT THOUSAND DOLLARS
($1,638,000)
Case Study: Appraisal of a Strata Industrial Property
21
Strata Title Analysis
The owner intends to strata subdivide the development in order to maintain the option of future disposition via
strata sales. The availability of a strata subdivision will also enhance appeal of the property to a single purchaser.
Strata industrial units trade primarily on the basis of direct physical comparison with other projects. To this end,
we surveyed the New Town marketplace for strata industrial developments, with the following evidence selected
for presentation purposes.
1. Queen Industrial Park
33733 Queen Road, New Town
Plan LMS927
Constructed circa 1991, this concrete block and wood frame industrial development entails multiple
buildings oriented around a central parking, loading and internal transportation area. Units feature
light, three-phase power, front grade loading, natural gas heat, and 18 to 20 foot ceilings. The top
of the buildings are sheathed with prefinished metal for visual relief; however, there are no
windows at the mezzanine levels. Mezzanine buildout is limited as a result. Overhead doors
measure approximately 9' 12', strata fees circa $100 per month, M-1 zoning.
Reported Sales activity includes:
Strata Unit Size
Unit Lot /Sq.Ft. Date Price $/sq.ft. Comments
A-11 1 2,026 12/09 $95,000 $47 Some freeway exposure
B-1 21/22 4,052 2/10 188,000 46 Appx. 400 sq. ft. mezz. office
B-11 12 2,026 11/10 95,000 47 Two-100 sq. ft. offices
B-8 15 2,026 List 92,000 45 Small mezz. office/storage
B-9 13/14 4,050 List 200,000 49 Mezz. offices/storage
2. 3225 McIntosh Road, New Town
Northland District, Strata Plan NW3133
Concrete block front loading strata warehouse project, three-phase power, forced air heat, single-
storey, with smaller mezzanine offices. Built circa 1999, I-2 zoned.
Unit 5 available September 2011 at $109,888 ($73 per square foot). This 1,500 square foot unit is
leased at $8,700, or $5.80 per square foot, until April 2012 ($700 in annual expenses). Four
parking stalls. The indicated overall rate is 6.9% (adjusted) based on the asking price.
3. 3275 McIntosh Road, New Town
Plan LMP224
Concrete block strata development constructed circa 2006, three-phase power, natural gas heat, M-
3 zoned, 20 foot ceilings, grade loading, tilt-up concrete, plain interior and unit finishes; typically
one parking stall per 1,000 buildable square feet.
Reported activity includes:
Unit Strata Lot Size/Sq.Ft Date Price $/Sq.Ft.
3 3 1,800 List $89,900 $50
5 5 2,008 List 97,500 49
9 9 2,014 List 97,500 48
Case Study: Appraisal of a Strata Industrial Property
22
4. 33759 Moran Avenue, New Town
3.26 acres, I-2 zoned site near Old Town Highway. Proposed concrete block warehouse
development of 44,957 square feet, developer will construct strata units at asking price at $55 per
square foot for shell space. Dock and grade loading, three-phase power, gas heat, sprinklers.
5. Lane Industrial Park
31314/34 Pitt Road, New Town
Plan LMS2692
A new, multiple building strata warehouse development featuring two buildings facing Peardonville
Road and bridged by a mezzanine level office space. Standard industrial buildings to rear face onto
a central parking, loading and internal transportation court yard. Steel frame with tilt-up concrete
panels. Attractive and contemporary design, with well defined office/showrooms on grade.
Substantial mezzanine glazing, front loading, I-2 zoned, shell finish only, with rough plumbing,
sprinklers, electrical and gas, 128 2 148 overhead door, 1.6 acre site, with 58 parking stalls (1.64
stalls per 1,000 buildable square foot), 0.5 FSR
Reported activity follows:
Unit Size/Sq.Ft. Date Pric e $/Sq.Ft. Comment
101 1,898 List $203,500 $107 Commercial exposure
102 1,752 List 199,500 114 Commercial exposure
103 2,044 Sold N/A - Commercial exposure
104 6,454 List 450,000 70 Second level space
105 2,044 List 209,900 103 Commercial exposure
106 1,752 List 199,500 114 Commercial exposure
107 1,898 List 203,500 107 Commercial exposure
201 2,200 7/11 159,000 72 Upgraded by $20,000
202 2,200 7/11 139,900 64
203 2,200 7/11 139,900 64
204 2,200 7/11 139,900 64
301 2,200 7/11 138,000 63
302 2,200 List 149,900 68
303 2,200 List 149,900 68
304 2,200 List 149,900 68
6. 31265 Spoke Avenue, New Town
Plan LMP2576
New strata warehouse development, I-2 zoned, concrete block construction, mezzanine glazing,
back-lit awning, light, three-phase power, grade loading, 1358 2 3608 site. The design of this
project entails a single building demised to provide back-to-back strata units in the middle of the
site. Access to individual units is via a one-way road that contains parking and accommodates
loading bay activity outside the building. Congestion is a problem.
Ten units remain on the market, ranging in size from 1,063 to 1,616 square feet. Rates for shell
space start at $70,200, or $66 per square foot.
7. 2303 White Street, New Town
Plan LMS553
Constructed circa 2006, this concrete block strata warehouse features single storey front office
additions, three-phase power, gas heat, front grade loading, metal trim, no mezzanine glazing,
minimal tenant improvements.
Case Study: Appraisal of a Strata Industrial Property
23
Two recent sales reported: leases in place to expire January 2011:
Unit Strata Lot Size/Sq.Ft. Date Price $/Sq.Ft.
3 3 2,604 5/10 $140,468 $54
4 4 2,604 5/10 $140,468 $54
Analysis
The foregoing data reflects seven strata industrial projects in which recent sales activity for current listings prices
are available. These projects range considerably in overall quality as well as in the desirability of the location.
The majority involve inferior concrete block construction, relative to the more attractive steel frame/tilt-up
concrete panel design favoured in the market.
Index No. 1 is the Queen Industrial Park, a 20-year old relatively plain concrete block development located
some distance east of the subject. This development has limited fire resistance, lacking
sprinklers and fire proof construction. Project design is not amenable to a mezzanine buildout.
This is a very plain development, as reflected in values at $45 to $49 per square foot.
Index No. 2 and No. 3
entail adjacent McIntosh Road developments in the New Town Industrial Park, near the Old
Town/New Town Highway. These projects were developed five to seven years ago. A single
unit is presently available on the market at $73 per square foot overall, for a 1,500 square
foot space, presently leased at $5.80 per square foot. There are three current listings in
Index No. 3, at rates of $48 to $50 per square foot. Index No. 3 is of tilt-up concrete design;
however, there are minimal interior finishes.
Index No. 4 entails a 3.26 acre site near the Old Town/New Town Highway. A developer is prepared to sell
space within this new, concrete block building at a rate of $55 per square foot. The space
involves grade and dock loading as well as relatively heavy power; however, the location is
generally inferior to that of the subject.
Index No. 5 is a new industrial park development located near the subject, on Pitt Road. This project is
presently in the marketing stage. Construction is of steel frame, with tilt-up concrete panels. The
development entails a quasi-commercial front with typical industrial buildings at the rear. The
latter units offer the best comparison to the subject. The units are offered at a shell rate of $63 to
$68 per square foot. One unit sold during initial marketing phases at $72 per square foot,
reflecting upgrades to the overall project. The subject units have greater desirability than this
setting, particularly in terms of their tenant finish and economical heating systems. The parking
ratio is slightly better for the subject, which entails a “single loaded” traffic corridor rather than
a more congested double loaded traffic court such as Index No. 5.
Index No. 6 is a new strata development east of the subject, also on Spoke Avenue. This is a relatively small,
1.1 acre site, improved with a single building containing “back-to-back” units. Site circulation
for this development is poor, and this is reflected in difficult sales experience. Shell units within
this project are priced in the order of $66 per square foot.
Index No. 7 is a five-year old concrete block development located east of the subject, on White Street
nearby. Two sales occurred during late spring of 2010 at a price of $54 per square foot. This
development has a relatively attractive front pedestal office; however, there is no potential for
mezzanine storage or office space in this design.
Case Study: Appraisal of a Strata Industrial Property
24
The subject units compete well relative to the overall data, particularly due to the tenant improvements, site
circulation, parking and economical operating characteristics. Because of the extensive tenant improvement
buildout, units will have value exceeding that typical in the market. Perhaps the best indicator of value is Index
No. 5, the Lane Industrial Park, subject to adjustment for the improvements and design variances. We conclude
that typical units within the subject development will trade at values in the order of $75 per square foot of floor
area. Variances will exist within the project; this rate ought to be regarded as an average to which variations
will exist. Overall strata value is indicated at $1,709,000 (22,781 square feet $75, rounded). This sum
represents an aggregate of individual retail values, without discount for sales or marketing costs, sales incentive,
or holding costs.
Question for Students to Consider
Contrast the appraisal of a proposed strata industrial property with that of an existing standard industrial
building.