Purdy

Training Scenario 1

Experience Level: Beginner

Mr. Purdy is considering purchasing a small two acre property at the edge of town as an investment. He will be constructing the building out of concrete block based on cost and advice from his contractor. He wishes to rent the building out to multiple tenants. Mr. Purdy has come to you for representation and wishes you to evaluate what the property is worth.

Site Information is very important note in Illustration “A” the access from both 41 and 1^st and the general configuration of the property with specific regards to the frontage on 41.

Illustration “A”

Also look at the business on the map in Illustration “B” to see what other types of businesses are surrounding this property. Notice on this map that it is predominantly retail. But also note that there is a 900 unit residential subdivision going in. This subdivision is mostly condos and town homes. Think about business that thrives on condos. Although Mini Storage may pop into your mind the configuration of the property identified above and the surrounding traffic generators would indicate that this site would have a highest and best use as retail. The layout of the property, future land use changes, visibility, traffic generators, signage, and access with regards to ingress egress. Let’s look at the market rents in Illustration “C” to confirm.

Reference Book: The Site Book: A Field Guide to Commercial Real Estate Evaluation (Mesa Professional Development Series)

Illustration “B”

Market rent plays a big role in determining what a property is worth as value in commercial rent is determined by the projected or actual income stream of a project. Remember when looking at the possible uses you want to consider flexibility and what a potential type of tenant can afford to pay in rent. The 10% rule is a good rule of thumb. (A business can not typically afford to pay more than 10% of their gross towards real estate, see the illustration “D” below). Notice in the illustration below that when you start increasing the rent more than 10% that the other needs of the company will suffer. Also consider at $20.00 Per SF Gross that the total space a business could rent and still maintain 10% would only be 2,500 SF. Math: $50,000 ÷ $20.00 = 2,500

Market Rents: Illustration “C”

Anchored Retail $26.00 NNN

Retail Strip $22.00 NNN

Class “A” Office $24.00 Gross

Office General $18-19.00 NNN

Warehouse $12.00 NNN

Market Rents Retail

Building Size Anchored Per SF Pass-through SF Unit Size SF

150,000 SF Yes $24 $5.75 1,200 – 6,000

22,000 SF No $20 $4.75 1,300 – 3,000

45,000 SF No $21.50 $5.32 1,100 – 5,000

200,000SF Yes $25.50 $6.02 1,250 – 5,500

36,000SF No $24.50 $5.00 1,000 – 6,300

Business Income/Expense: Illustration “D”

Gross Income 100% $500,000

Labor 20% $100,000

Marketing 5% $25,000

Other 5% $25,000

Rent 10% $50,000

Profit 25% $125,000

Inventory 35% $175,000

Zoning Codes are very important as the gives vital insight to what can or can not be built on the property. In many cases developers will consider rezoning a property as the location and layout may dictate a higher and best use than what the property is currently zoned. Please take a look at “illustration “E””

Zoning Code

(14) CG. The intent and purpose of the CG district is to permit medium scale commercial facilities and to facilitate their proper development and use. Businesses in this district serve a community-wide market area and offer a wide range of goods and services. It is further intended that substantial buffering and other design techniques shall be used to lessen and/or prevent impacts on adjacent or nearby residential uses. This is not an implementing district and there shall be no further rezonings to the CG zone district. The standards contained in this district shall only be applied only to those zoning lots which are currently zoned CG.

Illustration “E”

Use Categories	CN	CBN	NT	CT	CP	CSC-N	CSC-C	CSC-R	CG
P = Permitted Use C = major conditional use MC = minor conditional use blank = Prohibited Use
RESIDENTIAL USE CATEGORIES
Household Living	Only household living use types below
Single		P(4)
Two
Townhouse
Multiple			P
Group Living	Only group living use types below
Assisted living facility			P
Community residential home			P
Dormitory, educational	P	P	P						P
Group home facility			P
Nursing home			P
COMMERCIAL CATEGORIES
Commercial Recreation	Only commercial recreation use types below
Recreational facilities (indoor)	C		C		C	C	C	MC	MC
Recreational facilities (outdoor)
Commercial Parking	P	P	P		P	P	P	P	P
Quick Vehicle Servicing	Only quick vehicle service use types below
Automatic fueling station
Car wash (non self-service)	C		C				MC	MC	MC
Car wash (self-service)	MC	MC	MC			MC	MC	MC	MC
Motor vehicle fuel station	MC	MC	MC			MC	P	P	P
Motor vehicle service station			MC				P	P	P
Major Event Entertainment	Only major event entertainment use types below
Auditorium, convention center	P	P	P			P	P	P	P
Pari-mutual facility
Office	Only office use types below
Alarm system, security operation office	P	P	P		P	P	P	P	P
Contractor, tradesman's shop/office
Data and Computer services		P			P		P	P	P
Employment Office	P	P	P		P	P	P	P	P
Financial Institutions	P	P	P	MC(4)	P	P	P	P	P
Medical/Dental Laboratory					P
Newspaper Office w/o printing	P	P	P		P	P	P	P	P
Office, business or professional	P	P	P	P(4, 5)	P	P	P	P	P
Office or clinic, medical or dental	P	P	P	P(4, 5)	P	P	P	P	P
Optical and eye care facility		P	P				P	P
Travel agency	P	P	P	P(4)	P	P	P	P	P
Radio and television station w/o transmission towers or dishes	P	P	P		P	P	P	P	P
Retail Sales and Service	Only retail sales and service use types below
Adult bookstore/video store (2)							P	P	P
Adult theater (2)							C	C	C
Alcoholic beverage store	C	C	C	C		C	C	C	C
Antique Store	P	P	P	P	P	P	P	P	P
Apparel/clothing store	P	P	P	P	P	P	P	P	P
Appliance and household equipment sales, lease or service	P	P	P		P	P	P	P	P
Art or framing gallery	P	P	P	P	P	P	P	P	P
Art or craft supplies, retail	P	P	P	P	P	P	P	P	P
Automobile rental agencies	P(1)	P(1)	P(1)			P(1)	P(1)	P(1)	P(1)
Bakery, retail	P	P	P	P	P	P	P	P	P
Bar or tavern			C	C				C	C
Barber, Beauty Shop, tanning salon	P	P	P	P	P	P	P	P	P
Bed and Breakfast	P		P	P	P				P
Boat sales, rental or lease			MC
Book, stationary store	P	P	P	P	P	P	P	P	P
Carpet or floor retail sales		P	P		P		P	P	P
Convenience store	C	C	C			P	P		P
Copying, duplicating shop	P	P	P			P	P	P	P
Crematory	P	P	P						P
Dance and music studio	P	P	P	P(4)	P			P	P
Delicatessen	P	P	P		P	P	P	P	P
Department store					P		P	P
Drug Store or pharmacy	P	P	P	P	P	P	P	P	P
Dry cleaners or laundromat, retail	P	P	P	P	P	P	P	P	P
Florist, plant or gift shop	P	P	P	P	P	P	P	P	P
Food or grocery store	P	P	P	P	P	P	P	P	P
Fortune tellers, astrologists, psychics, palmists, etc.
Funeral homes	P	P	P						P
Furniture sales	P	P	P	P	P	P	P	P	P
Garden center or plant nursery w/o outside bulk material storage)	P	P							P
Hardware store	P	P	P			P	P	P	P
Health club or spa, exercise, exercise instruction or dance facility	P	P	P	P(4)	P	P	P	P	P
Home electronic sales, lease or service	P	P	P		P	P	P	P	P
Home improvement center								P
Hotel/motel			P		P				P
Interior design and decorating shop	P	P	P		P	P	P	P	P
Jewelry store	P	P	P	P	P	P	P	P	P
Lawn mower sales and service
Locksmith	P	P	P		P	P	P	P	P
Motor vehicle parts, retail			P				P	P	P
Motor vehicle sales agency									C
Motor vehicle sales lot (used)
Motor vehicle showroom			P						P
Music store	P	P	P		P	P	P	P	P
Newspaper, magazine or tobacco store	P	P	P	P	P	P	P	P	P
Nightclub			C	C				C	C
Office equipment sales, lease and service		P	P		P		P	P	P
Pawn Shop
Pet grooming services (3)	P	P	P			P	P	P	P
Pet store (w/o kennels)	P	P	P		P	P	P	P	P
Photographic studios	P	P	P	P	P	P	P	P	P
Photographic stores, retail	P	P	P	P	P	P	P	P	P
Physical culture establishment (2)									C
Restaurant	P	P	P	P	P	P	P	P	P
Restaurant, fast food	P	P	P	P	P	P	P	P	P
School, vocational, trade or business			P						P
Shoe repair	P	P	P		P	P	P	P	P
Shoe store, sales (retail)	P	P	P	P	P	P	P	P	P
Sporting goods, retail (not boats)	P	P	P	P	P	P	P	P	P
Tailor or Dressmaker	P	P	P		P	P	P	P	P
Theater, commercial			P				P	P	P
Theater, non-profit community	P	P	P		P	P	P	P	P
Thrift shop	P	P	P			P	P	P	P
Variety retail	P	P	P	P	P	P	P	P	P
Variety, sundry or candy store	P	P	P	P	P	P	P	P	P
Veterinary clinic	P	P	P		P	P	P	P	P
Video, movie store (non-adult)	P	P	P	P	P	P	P	P	P
Self-Storage
Vehicle Repair
INDUSTRIAL USE CATEGORIES
Industrial Service	Only industrial service use types below
Printing shop	P	P	P		P	P	P	P	P
Taxi or limousine dispatching service			P						P
Taxi or limousine operations facility									P
Tool and equipment rental									P
Manufacturing and Production	Only manufacturing and production use types below
Artist, sculptor, potter, weaver,etc. studios			P
Warehouse and Freight Movement
Waste-Related
Wholesale Sales	Only wholesale sale use types below
Wholesale facility(w/o manufacturing onsite)
INSTITUTIONAL USE CATEGORIES
Basic Utilities	P	P	P	P	P	P	P	P	P
Colleges	P	P	P						P
Community Services	Only community service use types below
Library	P	P	P		P	P	P	P	P
Day Care	Only day care use types below
Adult day care	P	P		P	P	P	P	P	P
Child care	P	P	P		P	P	P	P	P
Family day care	P	P	P		P	P	P	P	P
Medical Centers
Parks and Open Space	Only park use types below
Cemeteries, columbaria and mausoleums	P	P	P			P	P	P	P
Park	P	P	P	P	P	P	P	P	P
Private Clubs	P	P	P		P	P	P	P	P
Yacht club
Religious Institutions	P	P	P		P	P	P	P	P
Schools	P	P			P	P	P	P
OTHER USE CATEGORIES
Aviation and Surface Passenger Terminals	Only Aviation and Surface Passenger Terminal use types below
Bus and transportation terminals									P
Detention Facilities
Radio and Frequency Transmission Facilities	Only Radio and Frequency Transmission Facility use types below
Commercial Wireless Telecommunication Towers	C	C	C	C	C	C	C	C	C
Rail Lines and Utility Corridors

Construction Cost

This data is all speculative and will very from town to town. It is always a good idea to get up to date information from local builders and suppliers to verify cost, and if a project has been delayed it is always good to update this information on your Performa ever three to four months as prices shift quickly and sometime can lead to the beginning of the end. Make sure to check with more than one builder. For this training I have some sample numbers below in Illustration “F”.

Illustration “F”

Builder “A”

Tilt Wall is running $80 SF and is best used in office or wheelhouse buildings.

Concrete Block is running $110 SF and seams to be very popular with retail as it offers the flexibility within the different architecturally themed areas.

Metal is running $65-$75 SF is use for light and heavy manufacturing.

Builder “B”

Tilt Wall is running $75 SF

Concrete Block is running $100 SF

Metal is running $55

Builder “C”

Tilt Wall is running $95 SF

Concrete Block is running $130 SF

Metal is running $80 SF is

Builder “D”

Tilt Wall is running $85 SF

Concrete Block is running $115 SF

Metal is running $75 SF is

Don’t forget real estate agents, carrying and opportunity cost. For this exercise use a two year term at 7% per year, 0% for the leasing commissions, unless you think you can figure it out, then use 6% for leasing commission. Remember this is just the beginning and there will be many much more complex properties to evaluate in the future. Just remember this is just to get you started, if you are really interested then CCIM offers some of the most complete courses in developing the skills and understanding necessary to become competent at evaluation commercial land. MAI also offers some detailed courses for land evaluation.