MiniCase on Appraisal
alec.delgado
2019sample1ofassignement.pdf
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Table of Contents Property Description…………………………..…….2
The Market…………………………………..………..….3
Proforma Inputs and Assumptions…………...4
Proforma…………………………………………………..5
Valuation with Comparables……………………..6-7
Valuation with Akerson Cap Rate……………….8
Overall Analysis………………………………………….9
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Property Description 13450 SW 129th Street is an industrial warehouse located in Southwest Dade. This one-story, single-tenant property sits on 0.6 acres of land and offers 11,204 sq. ft. of rentable space. The property, which was built in 1989, is for sale for $1.3 million, or $116/SF. It includes 23 parking spaces and 6 drive ins. Also, the property is zoned IU-C, which allows for offices, warehousing, wholesale distribution facilities, and storage facilities. It is a 2 Star Industrial Warehouse according to CoStar.
The industrial warehouse is currently solely occupied by Jet Accessories Technicians. This tenant has occupied the property since 2015 and has two years left on the lease. The lease contract includes a five-year renewal option most likely to be exercised on or before the termination date, according to Marcus & Millichap, Inc., who is the listing company.
The property is located close to Florida’s turnpike. Also, Miami Dade County is adding an exit extension directly off SW 128th Street on the Don Shula Expressway. This is beneficial to this industrial property because the closer an industrial property is to the highway, the less the tenant has to spend in costs for transportation, creating a higher value for the property. The warehouse is also located 0.5 miles from the Kendall-Tamiami Executive Airport, where most of the properties in the submarket are clustered.
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The Market The industrial market is booming right now due to high demand caused by ecommerce. This is true especially in the Southwest Dade Submarket. There is over 10 million square feet in inventory just in the Southwest Dade Submarket. This submarket also had one of the lowest vacancy rates (1.8%) in the metro in the last quarter of 2018 and rent rates that were higher than the average in the metro. However, pricing and sales volume has slowed overall in 2018.
The strength of the market correlates with 13540 SW 129 Street. The following table compares the submarket to the subject property:
Demand & Sales Submarket 13450 SW 129 St
Sale Price/SF $157* $116**
Vacancy Rate 1.8% 0.0%
6 Month Leasing Probability
49.4% 100%
12 Month Properties Sold
94 -
*12 month sale price/SF-based off of total industrial properties that have sold in the Southwest Dade submarket within the last 12 months
**Asking sale price/SF
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Pro Forma Assumptions:
General Information Inputs
Operating Expenses (Per Rentable Area growing at Expense Inflation Rate) ** Expenses Direct
From Prior Year
Property Class Industrial Utilities $0.25/Ft, Paid by Tenant
Analysis 10 yrs - Beg. April ‘19 Contract Services $0.09/Ft, Paid by Tenant
Rentable Sq/Ft 10,420 Sq/Ft Repairs and Maintenance $0.25/Ft, Paid by Tenant
General Inflation 3% Management Fee $0.36/Ft, Paid by Tenant
Market Inflation 5% Insurance $0.50/Ft, Paid by LL
Expense Inflation 3% Real Estate Taxes $1.62/Ft, Paid by LL
Capital Expenses (Per Rentable Area Growing at General Inflation) Market Leasing
Capital Reserves $1.25 – PRO-FORMA
DID NOT INCLUDE Renewal Probability (1) 85.00%
New/Renewal Rent $11.60/Ft - 3% increase on the last years rent
Tenant Rent Roll: Jet Accessories Technicians Market Rent Increases 3% Annual Increases
Analysis Begin Rent $10.93 per Sq/Ft Months Vacant (2) 3 Months
Rent Increases 3% increase on
9-1-2019 Leasing Commissions 4.5% New; 2.5% Renewal
Lease Start 3/1/2015 Free Rent (3) None
Lease End 9/1/2020 TI (3) None
Reimbursements
Tenant reimburses all but RE Taxes and
Insurance Reimbursements Tenant pays all but RE taxes and Insurance
Market Leasing Assumptions
Jet Accessories Technicians Term 5 years
(1) We believe this tenant has a high likelihood of renewal due to the lack of availability of similar property as per the 1.8% vacancy in the area.
(2) We believe a lack of supply and increased demand for industrial will make filling this property upon vacancy very fast. Our research indicated that 3 months would be an average vacancy.
(3) Hot market for industrial near transport hubs
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Pro Forma
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Valuation with Comparables Comparable properties to 13450 SW 129 Street were obtained from the CoStar database based on the following criteria: industrial property type, within five miles of the subject property, a 1-3 Star rating by CoStar, and no more than 9,000 SF bigger or smaller than the subject property. Also, all of the comparables are 99-100% occupied, similar to the fully occupied subject property. Lastly, they were all built or remodeled within 12 years of the subject property’s age.
The following map includes the locations of the five comparables:
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The following five properties were selected and given the appropriate weights based on their similarity to the subject property in order to calculate a more precise weighted average capitalization rate. Two properties were given a weight of 10%, which is the lowest weight, because they were the farthest from the subject property and because they were significantly smaller or larger than the subject. One property was given a weight of 20% because it was closer to the subject and a similar price, but it less similar when compared size to the subject than the two properties given a weight of 30%. The two properties weighed at 30% were the most similar to the subject because they were within about 3,000 square feet of the subject, less than a mile from the subject, and relatively similar in pricing to the subject property.
Address Sale Price SF Price/SF Distance Weight Cap
8901-8907 SW 129h St
$1,050,000 5,700 $184.21 4.61 0.1 8.4%
10805-10821 SW 188th St
$1,630,000 19,184 $212.12 4.63 0.1 7.0%
13192 SW 130th Ter
$825,000 8,440 $97.75 0.37 0.3 8.0%
14152 SW 139th Ct
$1,650,000 16,740 $98.57 0.90 0.2 7.6%
13186 SW 130th Ter
$825,000 8,400 $103.13 0.39 0.3 8.0%
Weighted Average 7.86%
The overall capitalization rate was calculated to be 7.86%. This gives us a valuation of $1,193,295 ($93,793/0.0786).
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Valuation with Akerson Cap Rate Ackerson Cap Rate Formulas
[M* RM] + (E * YE] – [M * P * 1/Sn] = R CV
RΔv = R CV – [Δ * 1/Sn]
General Inputs RCV 7.29%
LTV 70.00% NOI $93,793
Loan Rate 5.00% Property Value w/o Appreciation $1,286,425
Holding Period 5 RΔv 5.72%
Loan Term (Amortization) 25 NOI $93,793
Required Return on Equity (Ye) 12.00% Property Value w/ Appreciation $1,640,632
Annual Appreciation 2.00%
Assumptions:
Ackerson Inputs Loan Terms: We obtained our inputs (rate, LTV and loan term) from a representative at City National Bank, these are average terms for a value-add industrial property in Miami-Dade. Property Appreciation & Return on Equity: We used 2% annual appreciation for industrial property and 12% Return on Equity, we concluded these values were appropriate based on Ed Easton's presentation and South Florida market research.
M (LTV) 70.00%
Mortgage Constant (Rm) 0.0710
E (1-M) 30.00%
Return on Equity (Ye) 12.00%
% of Loan Paid (P) 0.1158
Sinking Fund Constant (1/Sn) 0.1574
Appreciation during Holding Period 0.1000
Scenario Analysis: Current Optimistic Moderate No Appreciation Changing Cells (Inputs) Loan Rate 5.00% 4.00% 6.00% 5.00% Return on Equity (Ye) 12.00% 15.00% 10.00% 12.00% Annual Appreciation 2.00% 3.00% 1.00% 0.00% Result Cells Rcv 7.29% 7.63% 7.30% 7.29% Property Value w/o Appreciation $1,286,425 $1,229,173 $1,285,222 $1,286,425 RΔv 5.72% 5.41% 6.48% 7.29% Property Value w/ Appreciation $1,640,632 $1,735,029 $1,447,687 $1,286,425 Real Estate is an ever-changing industry very sensitive to market conditions. For this reason, we numerically illustrated three different scenarios above with different inputs.
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Overall Analysis Using the Ackerson approach and comparables analysis we found the following
values for this property:
Valuations
Comparables $1,193,295
Ackerson w/o Appreciation $1,286,425
Ackerson w/ Appreciation (2% annual appreciation) $1,640,632
Ackerson w/ Appreciation (1% annual appreciation) $1,447,687
Based on our analysis we found that the asking price of $1,300,000 is appropriate for the subject property. We understand that appreciation in this market is still an important factor, however as Miami-Dade becomes more mature, there will be a slowdown in property appreciation, since many industrial investors are moving up the peninsula into Broward and Central Florida.
For this reason, we found it appropriate to establish a price range between our comparables value ($1,193,295) and our Ackerson value with 1% annual appreciation ($1,447,687). The appropriate value will be the midpoint of this two which is $1,320,491. However, a highly interested party could potentially agree to pay a price closer to the top of the range and an aggressive seller could price the property closer to the lower end of the spectrum.
