Appraisers - Friend or Foe

I have learned quite a bit about the appraisal profession in my graduate real estate class. There is a real difference on the level of detail between residential and commercial appraisers. Both use art, science and opinions to value property but the commercial is much more of a science.

The commercial appraisers have a magnitude of mathematical equations to use and analyze. It appears that what drives it is the large amounts of investment and equity and are used often by potential investors. 

I would hope, soon, that the appraisal industry recognizes high performance and low impact developments with a higher value. Mainly because those structures are requiring less demand on infrastructure and giving an added value to its occupants and investors/owners.

The appraisal profession is much more interesting than I had given it credit.
Not enough to be one. :) 

How To Approach Valuation of Buildings

There are three distinct approaches in evaluating and appraising property and land. These approaches can and many times overlap.

Sales Approach is the most common and the one approach that people think of if they have owned a house. It is basically using comparable property to ascertain the value. It is more difficult with commercial buildings because they don't turn as often and so it is harder to find comparable buildings.

An appraiser should take into consideration 6 factors:

• Financing - do they have advantageous financing
• Sales Conditions - overly restrictive
• Timing - with the comparative properties, when were they sold
• Location - 
• Physical - landscaping, roof (special conditions)
• Market Conditions - balance between supply and demand. Ability to easily replace or substitute the property

The second is the Cost Approach. An appraiser typically uses this approach on newer buildings and uses the costs to replace. Many times using a quantity survey from the detailed building costs to use for replacement value.
Estimate land value then estimate the replacement cost of structure. In the Cost Approach, evaluate the indirect and direct costs. The assessor methods can be either:

• comparative unit - cost per square foot
• quantity survey - contractors line item bid
• unit in place - cost of improvement, unit cost of all building labor and materials, then multiplying the sum used on the building.

Cost approach is used most often when the sales comparison approach can not be used because of lack of data on comparable sales or rentals. The building is a special purpose property with few comparable sales or none or the property is proposed construction. The limitation with the Cost Approach is that it doesn't reflect supply and demand.


The third and final is the Income Approach. In this approach, an appraiser could either use the Direct Capitalization Method which is the process of converting a one-year stabilized NOI or the Discounted Cash Flow Model.(DCF)
Direct Capitalization Method is constructing a Cap Rate.
V=Market Value, I=NOI, R=Cap Rate
V=I/R

The DCF model determines property value by discounting the following values to a present value:

• NOI for all years through the end of the projected holding period for the property
• Sale proceeds for the property at the end of the projected holding period

Effectiveness of DCF model attempts to pattern the thinking of an investor. Stabilized or smaller properties are usually best analyzed by capitalization and properties with uneven cash flows or those acquired by smart investors should be analyzed by a discounted cash flow.

The Only Platinum Certified Commercial Skyscraper

One Bryant Park

The United States represent less than 5% of the world's population but we consume 25% of the world's resources. Buildings use 40% of the energy consumption and Richard Cook, an architect wanted to radically change the way we build buildings and cities. Bank of America, wanted to be on the cutting edge, hired Richard Cook to do just that in Manhattan. 


Because its Manhattan with skyscrapers surrounding the area, it took them a year just to excavate. Once built, the building is 54 stories high. The steel used is 60% recycled. They have a reclamation rain system with grey water tanks in the basement. Green roofs or sky gardens are installed on the 6th floor, which lower the heat island effect. Collection points for rain water are installed as well. $500,000 is saved in water each year. Cook designed the building so that the air it takes in, goes through a ventilation unit, circulates, is cleaned and then goes back out, cleaner than it came in. This saves 30% on energy.

Reclamation system

Water is chilled at night in 44 tanks in the basement. Ice keeps building cool by day. The goal was to reduce energy use by a half more than a traditional building its size.

The difficult is that we continue to add heat to our cities by creating hard surfaces, for example, the Empire State Building. All those hard edges create heat and it reflects onto other hard edges. 

The Hurst Tower was built with triangular sections which needed 26% less energy because it needed less artificial light.

Each one of the dots on the glass windows reflects the suns rays away from the building. It reduces the heat on the inside of the building. This special coating allows light in but not heat.

The concrete used consisted of 45% swag from a steel furnace. It is typically waste but when used in concrete, it makes it stronger. 

By going 'green' it cost Bank of America 5% more than a conventional building, which equates to about $60,000,000. They still felt they wanted to be on the cutting edge and it will pay off in energy and water savings plus less sick days for employees. They set out to create a new standard. As architect, Robert Cook said, "I don't want to just do buildings 'less bad', but make the world a better place."

This by far was my favorite video to watch.

Construction in the South Pole??

I'm grateful to scientists, especially those that set up camp in Antarctica. They are the ones that discovered the hole in the ozone. Not that that has tempered many people or countries from adding to that depletion or even believing that the research is correct.

Its difficult and dangerous enough to construct anything let along have to do it within 110 days each year and 75 degrees below with winds above 100 miles an hour. Everything freezes and fast. I can't even imagine the challenges. Takes the 'just in time' for materials to a new level. They received one shipment of materials a year. The project managers had to be very meticulous and their planning.

I actually lived in Alaska when I was in college. One of the most basic things that is completely different in Alaska is that you don't turn off your ignition when you put gas in your car. You leave it running because the engine could freeze. Many cars also had electric plugs in the front end of the car and you would plug it in when you went into a place of business or stayed in a hotel.

Research Center

My favorite quote from the video was, "there are lots of Plan Bs." Lots of improvisation.  100 workers. Had to take breaks after 90 minutes or frostbite may set in. Interesting note to ward off frostbite is duct tape. Good to know.

The facility is built on stilts that can be jacked up twice to give way to snow buildup. The facility has a 45 year life span. The walls on the inside or made of SIP panels which have been around for 40 years. Energy efficiency is key. 

The most interesting part of the documentary was about the inspection team that came out for 'hell week'. 10 days is a long week for normal construction. You can imagine what it was like for the project manager and his team at the research center in Antarctica. Towards the end of hell week, the team had 52 priority one items to do before the inspection team left in 24 hours.
They pulled it off. What a celebration.....but the health and safety of the 150 people that would live in this facility against those elements should be thankful of the inspection team.

This research facility may change the way we see our planet and universe. Very interesting story.

Integrity in Commercial Construction

Ridgemont Construction was formed 36 years ago and is a pure Design/Build General Contractor, they subcontract everything but the owner has one point of contact. They depended primarily on repeat business and retention of clients until hiring Seth Williams, 3 1/2 years ago to build the client base as the Director of Business Development. 73% is still repeat business which says a lot about Ridgemont and their reputation.

Ridgemont Construction is now a $100 million company. Seth responds to RFPs and builds relationships. Lots of golf is involved in his job :) but seriously, if they didn't deliver what they promised, relationships or not, they wouldn't get repeat business nor new.

Also, what is impressive is that even during the downturn of 2008-09, they did not lay off any employees. They have grown this year to 40 employees. Their office is very unique and has the open loft feel and looks like it spurs creativity, which is hard with engineers. 

Ridgemont Construction is focused primarily on retail, health care and parks/recreation. They enjoy doing the 3Ps: Public/Private Partnership. They are very strategic on defining their client base. 

The development that we toured in 107 degree weather will be a Chrysler/Dodge/Jeep dealership located across from Love Field Airport.
It is a metal framed or pre engineered building with plywood creating architectural detail.

Ridgemont has a Superintendent on site and they have only one project at a time. You can tell a lot about how good they are by how clean they keep the work site. 

Reese gave up his Saturday afternoon with the Promise Keepers to come talk to us yahoos! Thanks Reese.

Watching Paint Dry - Building Codes

Building Codes - Necessary Evil

In definition they are a collection requirements pertaining to buildings to focus on health and safety of the general public.

They are a minimum requirement and does not guarantee safety. Just building to code is usually not enough. Some developers would disagree and find some codes to be very onerous and subjective by the building officials and inspectors.

Codes date back to 1760 B.C. Codes in the US occurred in response to disaster. The US grew quickly and didn't implement codes until a disaster occurred and then cities responded. Codes apply to new construction, renovation/rehabilitation and change of use. Local requirements vary not only from state to state but from city. Building code inspectors are either specialized in building, plumbing, mechanical or electoral or a combination.

Permits are basically applications for inspections. Code violations are "red tagged" and have to be redone. 

International Building Code (IBC) is a Model Code so that communities don't have to reinvent the wheel and there is specific researched that have been proven. It avoids permissive language, creates unambiguous language etc.

The IBC may not address the unique needs of a local area and the local government may amend the IBC to fit that area. i.e. design of pueblos in SW United States or locally grown building materials.

Spa Castle or Cattle Call?

Rebar

A theme park for adults?
Spa Castle, owned by a Korean, opened the first facility in Queens, NY. The second opened in March in Carrollton, TX. They chose the Texas location because of a close relationship with a large Korean grocery near by.
The owner researched the best spas all around the world and took the best and incorporated them into one facility.


The City of Carrollton changed their maximum height limit to allow the Spa Castle's height.
They have 80 employees which include 4 maintenance workers. They only promote from within so all their marketing etc is done 'in house'. The Spa Castle owns their own construction company and real estate firm.

The facility in New York is a $35 million investment and the facility in Texas is a third larger.

They have bars throughout the facility. Oxygen is pumped throughout the facility. There are meeting rooms, massage rooms and many unique saunas for coed use.

The outside pools are heated all year around and when they made the transition to Texas, they were unaware of the extreme heat and had to add chillers to the pools so they wouldn't be soooo hot.

An incredible amount of money was put into materials in the finish out as well as the different sauna domes.
An editor's note: Spa to me is to be relaxing and tranquil. There was nothing tranquil about the Spa Castle.

Industrial Property for Reuse

This industrial property was constructed in 1970. It is located near the proposed Trinity River Vision (TRV) which will be a dense urban living, work, play area. This property may be river front with incredible views, ideal for a repurpose opportunity. Currently, this property is 50% leased with a 8 year fixed lease rate of $3.25. The leased fee status of this space is considered superior to the fee simple status of the comparable properties. The property is located on a primary road, however the access to the building from Henderson traveling west is not easily accessible due to the nature of the one way road. This may change under the new TRV development.


Building Information

• 23, 413 SF Total
• 11,500 SF available for lease
• 14'-16 Clear Height
• 3 Dock High Doors
• 1 Ramp
• Rail Serve

Trinity River Vision

The current tenant is Sherwin Williams and they utilize the property for warehouse and distribution. They currently pay $3.25/sf NNN and have eight years left on their lease. The space that is left to lease is an odd L shaped footprint and may be difficult to lease other than for storage.


The current market and appraised value is $553,935 according to www.tad.org, which leads me to believe that this property is overvalued. The comparison approach attempts to develop an identification of value.

Although it may appear that this is not a good investment immediately, holding the property until the TRV development begins could substantially increase your IRR. As long as the current cash flow offsets the monthly debt service, it may make sense to hold the property. Once the TRV development gets underway, this property could become river front property which presents some repurposing opportunities.


The property is within a mile from downtown Fort Worth and the urban core. The demographics demonstrate that the majority of people living in downtown are age 25-55. Many in this age group would enjoy a repurposed warehouse style living near downtown.


Sometimes real estate investment is for the patient investor who is open to repurposing based on surrounding investment and master plans.

Water Conservation by Aggies and City of Fort Worth

http://www.youtube.com/watch?v=GOLf2RbxmzE

Water Conservation is a Must!!!

I have made the executive decision to combine two blogs into one: Steve Chaney, Horticulturalist with Texas AgriLife Research and Extension and the Water Conservation Advisory Committee meeting for the City of Fort Worth.
The information is very closely related and mirror each other.


I was appointed to the City of Fort Worth's water conservation committee after voicing my concerns to the Director of Water and Assistant City Manager that we as citizens were not doing enough to conserve water, especially during a long lasting drought. 


As the newest member of the committee, I absorbed a lot of information at that meeting as well as the briefing I received the day before from the Tarrant Regional Water District. 

Water conservation is a long term plan and a drought plan is more immediate.

Lake Benbrook

Tarrant Regional Water District

Tarrant Regional Water District oversees the four water reservoirs and is responsible to provide additional water resources to a 16 county region. Fort Worth treats the water and then sells it to 30 wholesale customers (other municipalities). Tarrant Regional Water District has enforced Stage 1 water restrictions in August 2011. Those restrictions mainly pertain to irrigation watering only twice a week. Fort Worth already had restrictions on no watering between the hours of 10 am and 6 pm. City staff was asking the committee's recommendation on whether we should stay in Stage 1 restrictions even if we come out from a water level requirement. I stated that we should stay in Stage 1 because everyone will be use to the restrictions. It will confuse everyone if we go out and then have to go back in after this Summer coming up.

City of Fort Worth's list of programs for water conservation are:

high efficiency toilets

high efficiency clothes washer incentives

ICI (institution, commercial, industry) customer water audits

Cooling tower incentives

irrigation system evaluations

rainwater harvesting incentives

golf course conservation

etc.

I don't believe neighborhoods are aware of the programs that the city offers,let alone the education on water conservation, other than the lawn whisperer. 

Steve Chaney made recommendations for conserving water that is NOT reaching the populace but should be marketed by the city.

Rain gardens are a great example that doesn't take a lot of land but important for run off when it rains. It allows the soil to soak the water instead of impacting the storm water and flooding the sewers. Examples below.

The other important element to a water conservation plan is installing native plants. The City of Fort Worth does not require nor encourage as far as I can tell. They encourage native trees but that is all. There are no incentives. In fact, code enforcement was called when my mother had wild flowers growing in her front yard. The ordinance stated that you couldn't have anything growing over 12 inches. She won that battle because of the wildflowers being encouraged in other cities in Texas. But in a single family neighborhood, people like to see monotony, sameness. Native plants use much less water and maintenance.

Steve stated a good rule of thumb for a resident's yard is: 1/3 turf, 1/3 planting beds, and 1/3 permeable hardscape.

Texans use between 8 and 9 billion gallons of water per day. The aquifers are recharged at a rate of 4 to 5 billion gallons per day.


Conservation is the easiest and cheapest.


We take available clean water for granted and I don't want to appreciate it when its gone. We need to appreciate and conserve it now.


The city staff actually stated that there needs to be a balance because they make money by selling water so if everyone uses less, then they make less money. They are concerned about raising rates especially for Tier 1 customers. People who use very little water and may be on a fixed income.
I believe the city should raise the rates because if they don't then people definitely will not think about the amount of water they use. There should be incentives if you use less. That would fill the gap of what money the city would lose from water conservation.