Blog Post #1 - Research wins Championships

Sure, it sounds great, but is it the smartest way to spend your time and money? Recently, we were requested to perform an appraisal for ‘Market Valuation’ purposes of a brand new, ground up construction office building. The owner spent over $450,000, north of $270 per square foot, constructing their dream office. The office was beautiful, featuring custom high-end finishes throughout the building. After inspecting the property and reviewing the available data, it was determined that all three approaches to value were deemed necessary and developed. The sales comparison approach and income approach were fairly close to one another, but the cost approach told a different story. Due to the location of the subject, the rental rate needed to make this a financially feasible project was not attainable in the subject market area. On top of that, other office buildings in the same area were not selling for more than $150 per square foot. The cost approach produced a value very similar to the construction cost, but the other two approaches produced values far below the money spent and put into the new construction project. After reconciliation, the concluded to market value did not support the cost to construct a high-end office building in the area of the subject property. After spending almost $500,000, the concluded to ‘Market Value’ was half of the monies spent on the project.

A market study or financial feasibility test performed from a certified general appraiser, when the project was first contemplated, would have revealed this information. It would have been in the owner’s best interest to reach out to a certified general appraiser to conduct an appraisal or market study before even putting a budget together. This way, the owner would have known exactly how much to budget for the office building to get the best bang for their buck. The appraisal or market study may also have steered the property owner in a different direction. Maybe instead of constructing a brand-new building, it would have made more sense to buy an existing property and renovate the interior. Maybe a different submarket in the area that commanded higher rental rates and therefore building values, would have been the perfect place to build a dream office.

Do not make the mistake of overspending in your market. Know your market and be confident when you invest your money. Reach out to Alpha Appraisal Group for your appraisal and market study needs today. We will be happy to help!