Appraising Industrial and Flex Buildings: What Info Do You Need?

Why might you be engaged to appraise a single or multi-tenant industrial or flex style office building? What information do you need when appraising industrial and flex buildings? Below, we explain the primary reasons for these types of appraisal assignments and provide punch lists of the items that you should acquire for appraisal purposes.
Reasons for engagement
There are any number of reasons why you would be engaged to appraise an industrial or flex style property. The primary reasons are:
To aid the acquisition of an existing building
To aid the financing of an existing or proposed building
To examine the feasibility of creating a new facility
To examine the feasibility of renovating, expanding or repositioning an existing building
To estimate the real property value for the purpose of one or more partners acquiring the interest of other partners in a proposed or existing building’s ownership
For real estate tax assessment purposes
To aid a lender’s thinking about foreclosing or restructuring an existing financing
To aid a lender’s concern about the impact on value of an environmental contamination situation
To establish value of the real property in a bankruptcy filing
Learn all about appraising income-producing industrial and flex style office buildings with our CE course: Appraisal of Industrial and Flex Buildings.
Material and information required
Here’s a breakdown of the various info and items you should obtain when appraising income-producing industrial or flex buildings, whether you’re dealing with a proposed building, an existing building, an existing building with planned construction, or a building being repositioned.
For a proposed building:
A site plan
A set of building plans
If building plans are not yet available, then floor plans and sketches of the building
A copy of the actual or outline building specifications
Facts on the type of water and sewer that will serve the property, i.e., public or private
Copies or outlines of any leasing that has been obtained pre-construction
A detailed cost breakdown
Facts on the land acquisition cost and if it is to occur or if it has already occurred
Pro-forma income and expense statement as you will be giving a prospective opinion of value
Estimate of when the construction project is to begin and end
Information concerning any zoning code variances acquired or to be acquired
Information about any special assessment, tax incentives and similar
Information about potential site contamination and if the site is a designated “Brownfield” in a “Targeted Enterprise Zone” or similar
For an existing building:
All of the requirements on the previous page, as appropriate (For example, plans and specs may not be available.)
A basic description of the property: age, size, last time sold/acquired, last time renovated and similar
Depending on the building’s age, any significant capital improvements made in the past three years and their cost
Total number of on-site parking spaces and any nearby on street parking
An explanation of the HVAC (both office and industrial areas)
A representation about public or non-public utilities serving the site (investigate to confirm)
Current detailed rent roll showing tenant’s name, when lease(s) began, term, square footage area and what each tenant pays in addition to the basic rent
Copies of all leases to determine what, if anything, each tenant pays annually in addition to their basic rent (Compare with the rent roll to determine accuracy.)
Credit information, if available, for any major tenants (A major tenant is assumed to be one that leases more than 10% of the building and has 10 or more years remaining on its lease term, exclusive of any extension or term renewal options.)
Copies of the operating statements for the property for the past few years, preferably for a minimum of three years (This will allow you to see how well the property has operated and any good or bad trends. Copies of accounting statements or federal income tax returns are good sources of this information.)
A pro-forma income and expense statement for a current or prospective opinion of value (If you are doing a retrospective opinion of value, common sense will tell you the correct time period and what information to obtain.)
A statement about the age and condition of the roof (to see if a major expenditure needs to be contemplated or funds reserved) as well as roof warranty information
A copy of the most recent real estate tax bill (This will enable you to compare the historical taxes paid and/or see if there are any potential increased assessments, special assessments or tax abatements to consider. You will also need this to do a comparative study of other building’s assessments to see if the assessment of the subject is in line with, above, or below that of the comparables.)
A representation about the current zoning and any variances or grandfathering, i.e., a legal non-conforming use (USPAP Standard #1 requires you to address the zoning.)
Copies of old appraisals, irrespective of their value estimates (These may provide good descriptive material about the property and community.)
Additional items for an existing building being purchased:
A copy of the agreement of sale or purchase option, or at least some representation of what the price will probably be
If improvements are planned, a description as well as an estimate of their cost and an estimate of the time to complete
Additional Items for an existing building with construction contemplated (also includes a “repositioning”):
Explanation of the planned improvements and/or expansion
Estimated cost of the planned improvements
Estimate of the time it will take to complete the planned improvements
Copies of any pre-leases secured or an estimate if some are contemplated
Some estimate of the time it will take to lease the vacant space, if not well “pre-leased”
Client’s pro-forma that estimates the income and expenses for the first full year after 90 percent leasing of the entirety has been achieved
Client’s support for the projected rents and operating expenses, including comparables and/or a market study
You may be asked to do both an “As Is” value as well as a “Prospective value”
To learn about the important aspects of appraising single- and multi-tenant income-producing industrial and flex style office buildings, enroll in our CE course: Appraisal of Industrial and Flex Buildings.