Industrial Assessment Practices and Procedures · Assessment Practices and Procedures Industrial 8...

Assessment Practices and Procedures Industrial 1

Industrial Last Document Review Date: September 29, 2014

TABLE OF CONTENTS Introduction ......................................................................................... 3

In Scope ..................................................................................... 3

Out of Scope ............................................................................... 4

Executive Summary .............................................................................. 4

Resources ............................................................................................ 5

Industry Resources ....................................................................... 5

Compliance Checklist ............................................................................ 6

Processing Industrial Properties .............................................................. 8

General ............................................................................................ 8

Practices and Procedures .................................................................... 9

Appendix A: Frequently Asked Questions ............................................... 13

Appendix B: Occupancy Descriptions ..................................................... 16

Forward .......................................................................................... 16

Appendix C: Valuation Examples .......................................................... 25

Example 1: Actual Use 220 – Automobile Dealership ............................ 25

Example 2: Actual Use 222 – Service Station with Service Garage ......... 26

Example 3: Actual Use 224 – Self Serve Service Station with Car Wash and C-Store .................................................................................... 27

Example 4: Actual Use 225 – Convenience Store/Service Station with Restaurant ...................................................................................... 28

Example 5: Actual Use 226 – Car Wash with Mini-Lube Garage .............. 29

Example 6: Actual Use 227 – Automobile Sales Lot with small Sales Office ............................................................................................. 30

Example 7: Actual Use 228 – Automobile Paint Shop, Garages, etc. with Excess Land .................................................................................... 31

Example 8: Actual Use 273 – Storage and Warehousing – Closed .......... 32

Example 9: Actual Use 274 – Storage and Warehousing – Cold with Excess Land .................................................................................... 33


Appendix D: Cost Approach – Auto Dealerships ...................................... 34


INTRODUCTION In Scope

The following properties, identified by actual use, are within scope:

o 222 – Service Station o 224 – Self-Serve Service Station o 225 – Convenience Store/Service Station o 226 – Car Wash o 227 – Automobile Sales Lot o 228 – Automobile Paint Shop, Garages, etc o 272 – Storage & Warehousing (Open) o 273 – Storage & Warehousing (Closed) o 274 – Storage & Warehousing (Cold) o 275 – Self Storage o 400 – Fruit & Vegetable o 401 – Industrial (Vacant) o 402 – Meat & Poultry o 403 – Sea Food o 404 – Dairy Products o 405 – Bakery & Biscuit Manufacturing o 406 – Confectionery Manufacturing & Sugar Processing o 407 – Soft Drink Bottling o 413 – Flour Mills & Breakfast Cereal Products o 414 – Miscellaneous (Food Processing) o 416 – Planer Mills (When Separate From Sawmill) o 419 – Sash & Door o 421 – Vacant o 425 – Paper Box, Paper Bag, And Other Paper

Remanufacturing o 428 – Improved o 448 – Concrete Mixing Plants o 452 – Leather Industry o 454 – Textiles & Knitting Mills o 456 – Clothing Industry o 458 – Furniture & Fixtures Industry o 462 – Primary Metal Industries (Iron & Steel Mills, o 464 – Metal Fabricating Industries o 466 – Machinery Manufacturing (Excluding Electrical) o 470 – Electrical & Electronics Products Industry o 490 – Parking Lot Only (Paved Or Gravel)


The three main categories are:

o industrial general o industrial automotive (gas stations-fuel) o auto dealerships

Out of Scope

The valuation of special purpose properties and major industrial properties (MIPs) and electrical power generation (EPG) properties.

The following properties, identified by actual use, are not in scope:

o 430 – Petroleum And Gas Exploration (Including Oil And Gas)

o 431 – Production Pipelines o 432 – Oil Refining Plants o 433 – Gas Scrubbing Plants o 435 – Liquid Gas Storage Plants o 436 – Oil & Gas Transportation Pipelines

EXECUTIVE SUMMARY

The purpose of this document is to assist staff in the consistent application of assessment practices for the valuation, classification, coding and assessability of all general industrial properties.

Industrial properties consist of mainly warehouses utilized for a variety of storage, manufacturing, transportation, automotive and other industrial type uses. This property type is typically valued on the income approach; however, some exceptions apply. Gas station (fuel) improvements are valued using the cost approach and properties with limited market information may also be valued on cost. Also, in some remote/rural, or unique areas where no income information to support an income valuation is available, a cost or direct comparison approach (DCA) method is appropriate.

It is important to consult the Assessment Act, case law and review similar properties when applying classification. Industrial properties utilize mainly Class 06 – business and


other and Class 05 – light industry but may have a Class 01 – residential component, albeit rare, as well.

You need to ensure that any non-assessables are considered in any valuation of industrial properties. Most special purpose properties are valued on cost and consider non-assessables under the Assessment Act; however, you may come across non-assessables in warehouse type properties as well.

Excess and surplus lands also need to be considered when valuing industrial properties. Low site coverage may be typical to allow trucks the necessary turning radiuses needed to turn around, back up, access and egress the loading docks. It may be a requirement of the site and in fact not excess or surplus land. Site coverage is not the only indicator of excess land (see excess/surplus chapter in the ICI Land).

Lot storage income may already form part of the income approach so it is important to know what has been valued and in what way. If you were to add excess land for areas already valued as lot storage, you would be adding the value twice. Your competitive market set will assist you with valuation methodologies for properties in your neighbourhood.

RESOURCES Industry Resources

Industrial Space Measurement Standards

Bokoske, Kevin, The Valuation of Warehouses: IAAO Subscription Series, International Association of Assessing Officers, Volume 1 Number 1, Jan-Feb 2003.

http://www.turnerdrake.com/


COMPLIANCE CHECKLIST

The following is a list of items that must be completed in order to be considered compliant with this document:

1. A capitalized net operating income (NOI) approach will be used for general industrial warehouses within the scope of this document except:

a. in remote/rural, or unique areas where no income information to support an income valuation is available, in which case, a cost or DCA method is appropriate.

b. where the property is determined not to be at its highest and best use (HBU), a cost approach is appropriate with improvements depreciated to a nominal value.

2. Gas stations (fuel) improvements will be valued on a cost approach including small kiosks and mini-convenience stores.

3. A capitalized NOI approach using the Retail General will be used for major convenience store and fast-food components of service stations, except:

a. in remote/rural, or unique areas where no income information to support an income valuation is available; a cost or DCA method is appropriate.

b. where the property is determined not to be at its HBU, in which case, a cost approach is appropriate with depreciated improvements valued at a nominal value.

4. A capitalized NOI approach using Retail General will be used for other automotive properties (non-fuel) including, auto service centers including mini-lube, paint and repair garages and auto body shops except:

a. in remote/rural, or unique areas where no income information to support an income valuation is available, in which case, a cost or DCA method is appropriate.

b. where the property is determined not to be at its HBU, a cost approach is appropriate with improvements depreciated to a nominal value.


5. Properties valued on a capitalized NOI use a building residual to allocate value except:

a. in the case of an air-space parcel or designated heritage property in which case a land residual will be used.

6. Properties valued on a capitalized NOI will be valued using reported gross leasable area (GLA) except:

a. self-storage facilities will be valued using reported net leaseable area (NLA).

7. Excess land should be valued using one or more additional land components.

8. Industrial general properties with one or more non-industrial general use (office/retail, etc.) will be valued using a separate model for each significant non-industrial general component.

9. A separate occupancy should not be created for any office component of an industrial general occupancy if it falls within typical industry norms.

10. Market support must accompany any adjustments to the base rate or model for market influencing characteristics (attributes) at the model level. For example, adjustments to income, expense, vacancy, land, quality, view, etc., that varies from the base rate or model for the competitive market set.

11. Market support must accompany any size curves applied for market attributes beyond long-term stabilized estimates.


PROCESSING INDUSTRIAL PROPERTIES

General

1. Valuation method(s):

a. Capitalized NOI – this is the primary method of valuation for all industrial models; major convenience stores and fast-food outlets in gas station properties will also use this methodology using the general retail model (Retail General).

b. Cost method for gas station improvements, tanks, canopies, car washes, kiosks, mini-convenience stores, yard improvements, pump islands, etc. Auto dealerships will also be valued using the cost method.

c. Cost or DCA methods in remote/rural, or unique areas only when information to support an income valuation is not available.

TIP Inability to obtain information in a local market should not be the deciding factor in selecting the cost or DCA methods. Market information for competitive properties in similar communities within the region should first be investigated. NOTE A kiosk is valued as part of the gas station improvements on the cost method. Mini-convenience stores are typically valued on cost; however, use appraisal judgment as necessary. 2. Units of measure are GLA for all warehouse and service

garage uses; NLA will be used for major convenience stores and fast-food restaurants that use the retail general model. NLA will also be used in the case of self-storage facilities.

3. GLA will be based on reported space and be consistently determined for all properties linked to a model.

4. A building residual approach will be used to determine the improvement value.


5. Office space within a warehouse will be included in the GLA and will be valued as using the appropriate warehouse model. Other uses such as separate retail operations or caretaker’s residences will be valued using the appropriate retail general or apartment model.

6. Where more than one model is used in the valuation of a property, a predominant CAP rate will be selected. The predominant income should determine the relevant model capitalization rate to be applied.

EXCEPTIONS:

o The cost method will be used for properties that are not currently developed to their HBU.

o The land residual method will be used for value apportionment in the case of air-space parcels and designated heritage buildings.

Practices and Procedures

1. Create a industrial model record using the starting point of occupancy and region.

2. Select the appropriate value approach:

a. the capitalized NOI approach for general industrial warehouses.

b. The capitalized NOI approach for retail general – all automotive service, major convenience stores and fast-food uses.

c. For gas station (fuel) components such as storage tanks, pumps, and small kiosks utilize the cost approach – this includes a consideration for excess land to allow two approaches to generate value.

d. if there is not adequate market data use the cost approach for all improvements.

o Model Creation: a model should be designed to encompass the largest number of relatively similar properties, within the geographically broadest possible competitive market set. valueBC provides considerable flexibility to account for the diversity of buildings within


a specific model (e.g., income quality, size or suite mix, variable adjustments).

▪ The starting point for development of industrial models will be occupancy and region.

o Method: select CAP Direct Capitalization o Model Type: select IND – Industrial

Primary Model Use: select applicable occupancy

3. Create a model description based on the following naming convention:

o Occupancy short description o Geographic area that model applies – region,

jurisdiction or NBHD or smaller area (if necessary) o Physical attributes that further define model (if

necessary) o Sub-markets included (if any)

▪ Examples:

- Service Garage-Vancouver-Kingsway - Mini-Storage Facilities area 14 - Warehouse Model incl folios in Burns Lake (506)

and Smithers Rural (755) - Indus Flex Warehse – Vancouver Isl Region –

Small Towns and Rural - Service Garage, Truck Shops, Excellent Quality

Mini-Lube-Kamloops TIP While it is not strictly necessary to identify the occupancy and geographic application of the model in the model name, addition of this information improves clarity when multiple models are open at the same time. 4. While valueBC provides an opportunity to record vacancy and

use a detailed expense for each combination of occupancy, quality, economic rate, and unit of measure, the vacancy/occupancy and expense fields will not typically be used due to extreme difficulty in supporting such detailed information for industrial.

5. Industrial properties with one or more non-industrial components such as apartment, retail (separate retail operations in a self-storage facility, major convenience stores


in a gas station) will be valued through the application of a separate model within the property.

6. The De Minimus rule will be applied to determine whether space devoted to non-industrial use is significant enough to warrant the creation of one or more additional income records (drawing rates from other models).

CAUTION: The office component within an industrial building is treated as part of the warehouse and is not valued as a separate line item nor is the office general model used.

EXCEPTION: Where there is a completely separate office building, the office general model will be employed (refer to Office).

TIP Detailed vacancy, size adjustment curve, general vacancy, non-variable adjustment, all model attribute adjustments, CAP rates and adjustments, and effective age adjustments must have market support. 7. GLA will be used for industrial with the exception of self-

storage, which utilizes NLA.

8. Key the general vacancy as a percentage of potential gross income directly.

9. Record a non-variable adjustment only if the feature is not captured in the economic rate.

10. Extreme caution should be used when adding variable adjustments – variable adjustments are not normally required for industrial properties.

11. Use extreme caution when/if keying CAP adjustments.

12. Do not record individual expense amounts given the difficulty in supporting detailed expense itemization.

13. Create one or more additional income records for mixed-use properties where it is necessary to draw economic rates from another ICI model (e.g., retail models).

14. Create a commercial cost for all gas station (fuel) improvements – tanks etc., and ensure excess land is correctly accounted for the gas station improvements.


15. Use Marshall & Swift (M&S) built in to value for costing basic industrial buildings. It may be necessary to utilize the M&S brown manual for some items. For detailed cost information, including the brown manual, please see the AVS Cost Page.

16. For any questions regarding costing of improvements, please contact AVS Commercial.


APPENDIX A: FREQUENTLY ASKED QUESTIONS

Question Why is the Building Owners and Managers Association (BOMA) standard not applicable to warehouse and industrial premises?

1. Answer The BOMA standard is only applicable to office space adjacent to warehouse and industrial structures. Generally, the Society of Industrial and Office Realtors (SIOR) standard is applied to warehouse space. BOMA and SIOR are currently working together to create a new, more comprehensive standard.

Question Can enclosed loading areas be included as part of the rentable area of a building?

2. Answer Yes, enclosed loading areas that have a roof are included within the rentable area of a building.

Question How are mezzanines treated within an industrial building?

3. Answer

The actual area of mezzanine floors and balconies are included in the calculation of floor areas if the mezzanine or balcony floors are a permanent structure, have a minimum clear standing headroom of eight feet (2.44 metres) and form an integral part of the building.

Question How should the office space in a warehouse complex be identified (a separate occupancy line entry, Notes tab, etc.)?

4. Answer

No. The correct approach is to add an office to warehouse ratio attribute in the Commercial Building viewer/Descriptive Attributes tab. Do not add a separate line in the IncomeDCA Valuation viewer/Valuation tab/Occupancy spreadsheet (income record level). In the rare event that it is necessary to apply an adjustment for an office to warehouse ratio percent outside the norm for


the competitive market set, add the attribute to the warehouse model in the Non-Variable/Attribute Adjustment spreadsheet. NOTE Ask yourself these questions: 1. Does the additional office space (above the norm) add value

to the warehouse? If not, no adjustment can be justified.

2. Is the occupancy a flex space, rather than conventional warehouse? If yes, apply a flex model to the income record.

Question How should retail tenancies within a warehouse building be treated (e.g., discount merchandising, specialty food stores, bakeries, etc., common in some industrial parks)?

5. Answer

Create one or more additional income records for the non-industrial warehouse use and draw economic rates, etc., from the appropriate general retail model. As noted in question 4 above, the office component of a warehouse will not be valued through a separate model since the warehouse economic rate already includes the office use.

Question What if the warehouse contains one or more apartment suites for the caretaker/manager, or others?

6. Answer

This is not a common scenario in most areas due to zoning restrictions. However, if the use is significant, create a new income record for the non-industrial warehouse use and draw economic rates, etc., from the appropriate rental apartment model.

Question How should excess land be treated?

7. Answer First, verify that the land is “excess” rather than “surplus”. Refer to ICI Land for definitions and direction. If excess land can be identified, record the basis for determination of excess land in the Notes tab, and value the


excess land as a second land component in the Property viewer/Land tab, according to ICI Land.

Question How should income related to yard storage be treated?

8. Answer

A yard storage occupancy has been added to valueBC for a number of ICI model types (industrial, marinas, MHP, MOT, REC, and RET). When determining whether to add an occupancy line entry on an income record for yard storage, consider whether the yard storage income is already included in the economic rate for the property or whether there is an area of surplus land that is or may be rented for storage.


APPENDIX B: OCCUPANCY DESCRIPTIONS

Forward

Determination of industrial building occupancies according to class of building or space within a mixed-use property with similar amenities is subjective since buildings in each class will exhibit a number of the characteristics but not necessarily all. It will be important to ensure that the approach taken to determine the occupancy for industrial properties within regions is consistently applied for the competitive market set.

The following occupancies have been replaced:

326 GARAGE, STORAGE

434 CAR WASH, SELF-SERVE

775 SERVICE STATION - CH

386 WAREHOUSE, MINI

435 CAR WASH, DRIVE-THRU

776 SERVICE STATION - LO

387 WAREHSE, TRANST

436 CAR WASH, AUTOMATIC

777 SERVICE STATION - AV

406 WAREHSE, STORE

453 INDUSTRIAL FLEX BLDG

778 SERVICE STATION - GO

407 WAREHSE, DISTR

454 SHELL, INDUST BLDG

779 SERVICE STATION - EX

408 SERVICE STATION

455 AUTO DEALERSHIP

784 CARWASH-LOW COST

410 AUTO CENTRE 494 INDUST LGHT MANUFACT

785 CARWASH-AVERAGE

423 MINI-LUBE GAR 508 CAR WASH CANOPY

786 CARWASH-GOOD

787 SERVICE STATION - KI

Below are examples of the occupancies of the IncomeDCA Valuation viewer (for properties valued with capitalized NOI):

Code 1400 Service Garage Size Any size; 2,000 to 50,000 square feet Age Any age; new to 50 years old Defining Features

• One or more bays with hoists/pits for auto repair/maintenance and/or one


or more auto paint booths • overhead doors • single storey

Other Features

Any or none of:

• on-site parking • gas pumps • minimal or no office space • car wash (any type) • retail kiosk or full C-store

Example Service Station with full C-store:

Auto-Repair Shops:


Code 1401 Mini Storage Warehouse Size Any size; typically 10,000 to 50,000 square

feet Age Any age; typically new to 30 years old Defining Features

• Multiple small storage units (usually 20 to 500 square feet)

• Typically rented to residential or small commercial customers

Other Features

Any or none of:

• Gated entrance • RV and other large vehicle

storage (parking) • Single or multiple storey

buildings • Air conditioning • Multiple overhead doors • Managers apartment or office

at front of property


Example

Code 1402 Warehouse

Main sub-types are:

• Storage or bulk • Distribution • Cold storage

Size Any size – Storage or bulk typically 50,000 to 200,000 square feet

Age Any age Defining Features

• Intended principally for storage and distribution.

• Distribution designed for temporary storage only with


many more truck bays than a storage warehouse and usually less than 150 feet deep

• Typically associated with low site coverage – required for truck circulation and exterior storage parking.

• Multiple loading bays and overhead doors

• High ceilings (usually over 20 feet)

• Clear interior spans • Office space limited to five to

15 percent of GLA with office component reflected in the overall rent for warehouse.

Other Features

Any or none of:

• located near a rail spur • office portion • partitioning • showroom portion • yard area • typically single or two-storey


Example

Code 1403 Flex Warehouse


Size Any size; typically 2,000 to 50,000 square feet

Age New to 30 years old Defining Features

• Designed to allow flexible conversion of warehouse or manufacturing space to a higher percentage of office space.

• Typically “low-rise” in relation to bulk storage warehouse.

• About 30 percent dedicated to office-retail space and may resemble office or retail property from front of building.

• Commonly multi-tenant properties.

• Increased plumbing, lighting, and partitioning to accommodate a larger personnel load. Office/sales build-out varies depending on tenancy.

• Commonly used for market-distribution, light manufacturing, and service trades.

Other Features

Any or none of:

• dock loading door(s) • showroom space • single or two-storey • high ceilings (usually over 20

feet) • concrete tilt-up or steel frame

construction


Example

Code 1406 Land-storage Size Any size Age n/a Defining Features

• Cannot be subdivided nor does it support the HBU of the property

• Usually odd shaped portion of the lot; land required for a buffer; land encumbered by no-build restrictions, easements or overhead power lines.


• Only suitable for uses such as parking or storage.

• Also, refer to ICI Land.

Other Features

• N/A

Example Land storage with right-of-way (overhead power lines):

Lot with odd shaped portion and cannot be subdivided:


APPENDIX C: VALUATION EXAMPLES

Example 1: Actual Use 220 – Automobile Dealership

Service Shop = 7,522 square feet

Office/Parts = 3,492 square feet

Showroom = 8,694 square feet

Property Value Summary:


Cost Approach – Commercial Building viewer:

Example 2: Actual Use 222 – Service Station with Service Garage

Service Garage = 1,787 square feet



Example 3: Actual Use 224 – Self Serve Service Station with Car Wash and C-Store

Car Wash = 2,047 square feet

C-Store = 1,189 square feet



Example 4: Actual Use 225 – Convenience Store/Service Station with Restaurant

C-Store = 2,298 square feet

Restaurant = 3,379 square feet



Example 5: Actual Use 226 – Car Wash with Mini-Lube Garage

Car Wash (Self Serve) = 4,574 square feet

Car Wash (Automatic) = 1,176 square feet

Mini-Lube Garage = 2,097 square feet



Example 6: Actual Use 227 – Automobile Sales Lot with small Sales Office

Office = 400 square feet



Example 7: Actual Use 228 – Automobile Paint Shop, Garages, etc. with Excess Land

Service Garage = 10,110 square feet


Property Viewer – Land Tab – Excess Land:


Example 8: Actual Use 273 – Storage and Warehousing – Closed

Warehouse = 28,152 square feet



Example 9: Actual Use 274 – Storage and Warehousing – Cold with Excess Land

Cold Storage Warehouse = 76,912 square feet


Property viewer/Land tab/Excess Land flag:


APPENDIX D: COST APPROACH – AUTO DEALERSHIPS

This chapter includes the following actual uses:

o 220 Automobile Dealership o 227 Automobile Sales Lot

NOTE If the HBU is not as an automotive dealership or automobile sales lot, then refer to the Highest and Best Use – Interim Use. The primary approach to value is a systemized cost approach. Valuation examples can be found in Appendix C.

The cost approach must be supported by an income or direct comparison approach.

Application of the cost approach is as follows:

1. Use the Commercial Building viewer.

2. Use M&S as a replacement cost for a typical auto dealership.

3. Do not use actual costs. There are many property specific items that should not be included in the cost value. Actual costs can be used as a reference only.

4. Building area is to be split out into two components: 303 –Automobile Showroom and 528 – Service Repair Garage (or 325 – Service Garage (Obsolete)). Where necessary second storey office should be costed as mezzanine office.

5. Review the impact of local cost factors on value.

6. Carefully review and apply depreciation.

Physical: loss in value due to physical deterioration.

Quality A B C D Low 40 40 35 30 Average 45 45 40 35 Good 50 50 45 40 Excellent 50 50 45 40


Follow Marshall & Swift Guides for typical physical life of auto dealerships.

Use the depreciation tables in valueBC that reflect these lives (S300, S350, S400, S450, and S500). The table is selected as override depreciation in the Commercial Building viewer/Commercial Cost tab.

Functional: loss in value due to lack of utility or desirability of part or all of the property, inherent to the improvement; review and apply, if necessary, on a per property basis. This is keyed on the Commercial Building viewer/Commercial Cost tab.

Economic: loss in value due to causes outside the property and independent of it; review and apply, if necessary, on a per property basis. This is keyed on the Property viewer/Property tab.

Careful application of the cost approach including the consideration of all forms of depreciation is mandatory. Careful application of the secondary approach must also be completed.

After the two approaches have been carefully applied and a large differential exists, then a further review and application of an economic depreciation rate may be warranted.

Industrial Assessment Practices and Procedures · Assessment Practices and Procedures Industrial 8...

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