Real Property – For Real

July 25, 2016

When you own a business like a restaurant, bar, hotel, hospital, skilled nursing facility, etc. there are several components to your operation including: the real property, fixtures and equipment, and the intangible value of your business – that’s usually you!

As an appraiser, we are often asked to appraise the fee simple estate of your property, in this scenario we are appraising the fee simple interest only – unfortunately your grandmother’s recipes that bring hungry mouths through the door for generations do not add value to this analysis. This value does not consider the value of non-realty components and how, together, they make you money.

Some example of non-realty components that we often have to peel out of appraisals include:
• Cranes in industrial buildings, but craneways are part of the real property
• Coolers in liquor stores that can be removed
• Liquor licenses
• Certificates of need for medical facilities
• Mobile MRI and imaging equipment
• Soft and case goods in hotels

Craneway

Let’s dig a bit deeper with cranes. It is possible for the buyer of an industrial building to remove the cranes from the building; however, craneways are integrated into the walls and foundation and it would damage the property if they were removed. When we are analyzing comparable sales of industrial buildings and they include cranes we simple adjust the value of these cranes out of this price indication. But what value do we attribute to these cranes? The answer is: the value of them in place. If you were to call a crane dealer and describe to them the crane you have for sale, they will give you a price both “in the air” and “on the ground”. When the crane for the comparable building is “in the air” it is somewhat less valuable to a purchaser, as retrieving the crane from the craneway can be a costly endeavor. We have found that operable cranes in comparable buildings are worth about $1,000 per ton “in the air”.

So if comparable 1 and 2 are exceptionally similar to each other and sold on the same day with the same terms, we would expect that Comparable 1 with two-10 ton cranes would sell for about $20,000 more than Comparable 2 and we would adjust accordingly. Most lenders will capture the value of your subject’s cranes in a separate business loan as these are components of your business, not real estate.

If you need a commercial appraisal in metro Detroit or Ann Arbor give us a call and we will help you sort out the different components of value to provide the most thoughtful appraisal possible.

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