Commercial Development: Appraisers as Advisors

Appraisal, Commercial Real Estate

Beth Sigg
Northwest Real Estate Services

 

Usually, a commercial appraisal assignment is ordered by a lender after the proposed project has been designed, possibly platted, with needed zoning changes. In other words, these requests tend to be “after the fact” for a specific project that has already been planned for months or years.

What many investors do not realize is that an appraiser can be a valuable member of their planning team for commercial real estate projects. So, what can an appraiser contribute to your proposed investments?

 

An appraiser can estimate your ROI for that type of investment 

Wondering if you should build self-storage units or a strip mall? Thinking of putting in an apartment complex, but unsure how many units to build to avoid vacancy? Appraisers with geographic competency in the proposed area of investment can tell a potential investor which type of property could produce the highest return on investment; and can estimate how much that return could be. This knowledge comes from years of appraising a wide range of types of properties. Estimates of capitalization rates (rate of return) based upon actual sales/rentals provides the information investors want before investing their capital and time.

 

An appraiser can advise you as to the best location for your proposed project 

Many commercial appraisers routinely perform feasibility studies, and part of that analyses will reveal where the project should go. Research regarding competitors’ locations, traffic counts, and proposed municipal changes – all this is data that could be part of the feasibility study’s research. One of the biggest mistakes investors can make is to put a proposed project in the wrong geographic area.

 

Not every appraiser will be able to provide this service 

Just as your accountant may not be the right person to advise you on making money in your business, not every appraiser will make a good investment advisor. This skillset requires more than just knowledge of different types of properties and their expected rate of return. It requires that they have a personality that is fearless in sharing their opinions, perhaps in a public forum.

 

Investors should hire an appraiser as a consultant early in the project 

After decisions have been made to start a commercial development project, it’s time to hire your advisory team, to use them to their best advantage. Consider bringing them in at the initial planning stage for greatest input.

 

An appraiser as an advisor can be part of an advisory team that includes other experts 

Who else may be part of the advisory team for investors? We know it could include a real estate expert such as a sales agent, an accountant, building contractors, and others. After a decision has been made as to what type of project will be developed, the team members can then be chosen for the best fit.

 

Appraisers base their opinions on past and present data, not guesswork 

One of the greatest traits of an appraiser is that the appraisal process involves substantive research into current and past rents, vacancy rates, expenses, sales and asking prices, marketing times, and so on. What may appear to only be an “opinion” is actually an opinion backed by hours and hours of research into factual data on that type of property. Their opinions become more reliable because they are based upon past profitability histories of similar investments.

For your investment planning of proposed commercial real estate projects, consider adding an appraiser to your planning team. Their research abilities and analytical skills can provide valuable resources to enable your future success.