July 2010                                                          



Welcome to “Good Measure” a monthly newsletter from Fletcher and Company Appraisals that provides inside information on real estate valuation from an appraisers point of view. Fletcher & Company has provided real estate appraisal services since 1971 and we’ve recently expanded our exceptional customer service, high quality reports, ethical and professional attitude, and unbelievable turnaround times from Georgia to throughout the Southeast.  Please visit our website, FletcherAndCompany.com to learn more.

Deal of the Month

Brown Realty Advisors is pleased to announce the sale of the Keswick Village Apartments located in Conyers, Georgia.  Bo Brown, Barden Brown and Judy MacManus with Brown Realty Advisors represented the Seller, LNR.  Keswick Village is a 284 unit, Class A apartment community completed in 1996 at the Georgia International Horse Park.  The property sold for $12.8 million or $45,070 per unit on June 7, 2010.

EL-AD National Properties out of Miami, Florida purchased the property.  Minimal rehab/renovation is required at this lender owned property which was well occupied (approximately 93%) at the closing.  The actual cap rate was 6.53%. Fletcher and Company has performed many apartment complex appraisals in Georgia.

Getting Creative in a Slow Economy
A slow economy means real estate sales are slow and that can have a strong impact on the underwriting process. It can be frustrating when an appraisal relies heavily on meager sales data. Appraisers are called upon to broaden their methods of valuation and reviewers need to recognize the potential for misleading values when questionable sales are used.
When sales volume is low, or the available sale data is less than ideal, greater consideration should be given to the other methods of valuation. The appraiser and underwriting team may need to consider more creative methods of valuation like a land residual technique or a discounted cash flow on a property that would normally be valued using a direct capitalization approach. 
Consider an owner operated apartment property that is performing well. The new buyer for this asset may be another owner-operator with only the minimal capital needed to consummate a sale. In this case a clear understanding of the motivation behind the sale is essential to the underwriting decision. If the appraisal relies mainly on the sales comparison approach, with a high percentage of distressed comparable sales, the motivation behind the sale of the comparables would vary significantly from the conditions of sale for the asset being considered.

In this example a traditional approach of, if the “preponderance of the data” suggests the value of an apartment unit is x, then this must be the value of the subject could be a dangerous one. Relying on distressed sales, even when this data set is the “norm”, could skew the final opinion of value in a negative direction. Careful consideration of the condition of sale is required.

There are also many instances of partially completed projects. The improvements in place contribute varying degrees of value, depending on the property type, perceived holding time and the intended user. For multi-tenant income producing properties, the income approach may be the only method of valuation being employed by market participants. The cost approach has no relevance in a market where new structures can be purchased below replacement cost. For partially improved properties, a meaningful sales comparison approach can be nearly impossible to produce.

The underwriting process on a partially improved property or vandalized property may require a cost to cure estimate produced by a credible contractor.

Partially complete properties may or may not have improvement value. Depending on the expected holding period of the asset and the construction type, materials and level of completion, the improvements may be completely obsolete or depreciated by the time it is needed. In some cases, the property will be completed in the near term, but supply exceeds demand to an extent that the value of partial improvements has declined to almost nothing.

Low sales volume and an increase in partially completed projects has led to greater reliance on other methods of valuation and has forced underwriters and appraisers to get creative. The sales comparison approach is still an effective tool, as long as careful analysis of the conditions of sale can ensure that comparables are meaningful.

Fletcher & Company is your source for real estate information and data from the Georgia counties where you need it most. Sign up for our free resources for real estate professionals, including this newsletter and upcoming Quarterly Market Studies.

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Fletcher & Company Appraisals

122 W. Solomon Street
Griffin, GA 30224
(770) 227-4008
Toll Free: (866) 408-2812


Tech Tip
As in most industries, real estate professionals know that time is money. Particularly when you’re driving around looking at multiple properties. It doesn’t matter whether you’re appraising them, selling them or buying them, finding your properties quickly and efficiently is in your best interest.
Global Positioning System (GPS) devices are a great way to be sure you’re not wasting time. GPS devices work by sending signals to satellites in earth orbit that transmit precise signals, allowing receivers to calculate and display accurate location, speed and time information to the user.

Unlike some finicky satellite television systems, GPS is said to work accurately in all weather conditions, day or night, around the clock, and around the globe. GPS signals can be blocked, however, by dense forest, canyon walls, or skyscrapers, and they don’t always work well inside a building.

Many brands on the market today provide turn-by-turn spoken directions, access to MLS data, the ability to queue up numerous properties at once, detailed neighborhood maps, and more. A really handy trick is importing multiple destinations into your device and letting it plan your whole trip for you. One of the leading makers of GPS devices, Garmin, has some simple videos on its website that show you how to interface your device with programs like Google maps, MapQuest and Microsoft live search.Garmin Videos

Marketing Time vs. Exposure Time

In everyday life, the terms marketing time and exposure time may be used interchangeably. When it comes to the value of your real estate assets, however, confusing the two may result in a misunderstanding or worse. Exposure time is a real estate appraisal term that is an essential part of the opinion of value. It is a qualifier for that value. Exposure time is assumed to have preceded the date of value. If the appraisal is compliant with the Uniform Standards of Appraisal Practice (USPAP) then the exposure time is a required element of the assignment. Marketing time is the projected time needed to sell the asset at the appraised value after the date of value. An opinion of the marketing time may or may not be required, depending on the client’s needs.

When considering an investment opportunity, the liquidity of the asset is a key consideration for all of the parties involved. A middle income house with an exposure time of 30 to 90 days is a completely different type of asset from a luxury class house with an exposure time of one or more years. It is something more than the initial investment amount that separates them. The level of risk rises as the liquidity decreases. For lenders and equity investors alike, the liquidity of the asset is just as important as the dollar amount. When considering an opinion of value a longer exposure time suggests less liquidity and higher risk.

What happens when market conditions change? In that case the marketing and exposure times may be quite different. Say your last appraisal was dated November 2008. The exposure time may have been estimated at three to six months for a retail building. The marketing time, however, would probably have been projected at something greater. Prior to mid 2008, sales volume was high. A property that went on the market in early 2008 had a good chance of selling by the fourth quarter. Once the market entered a period of uncertainty, investors and lenders pulled back, sales volume plummeted and marketing times increased. We may now be entering a period of transition where exposure time, which preceded the date of value, may be significantly longer than the projected marketing time. This would suggest that the liquidity for that asset has actually improved.

As with so many other aspects of our industry, careful attention to detail is necessary. When analyzing a real estate investment or making underwriting decisions it is important to make a distinction between exposure and marketing time. Simply put, exposure time preceded the date of value and marketing time is a projection for the asset if it were put on the market at the appraised value. They are both, however, a measure of liquidity.
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