Appraisal On A Foreclosed Warehouse?
Our company is currently looking at a warehouse that is now bank owned. There will be an auction next week and we think the space is worth anywhere from $1.5M - $2M. However we're very unsure how to appraise this space.

1. Currently the space has a long term tenant occupying about 47% and paying 157k in rent/ year. Does this affect the value significantly?

2. This area does not have a large data set of warehouses sold. A similar space sold for $40/sqf in 2018, and another went for $60/sqf in 2019.

Is it worthwhile to hire a commercial appraiser before bidding?  Is there much a deal to be had on bank owned spaces?
[{"id": "f6xjxwj", "text": "Not enough info to provide a solid guesstimate", "replies": [{"id": "f6xog2v", "text": "Fair enough. I can PM you the address with the full offering info including floorplans, and operating cost / estimated net incomes.", "replies": [], "depth": 2}], "depth": 1}, {"id": "f6xkt0l", "text": "If there is a long term lease in place for 47% of the building you would use their rents to calculate value and market rents for the space up to the typical occupancy level.  You cannot use $ per sf comps unless the 47% is at market rents.", "replies": [{"id": "f6xp37n", "text": "The tenant is now month-to-month, but been there since 2012 and has a laboratory/equipment (government). They're renting 18,544sqf at $8.5/sqf annually.", "replies": [], "depth": 2}], "depth": 1}, {"id": "f6xlw5k", "text": "You need to figure out what you can rent the remaining space out.  Take this number and the rent from the other number and figure out what you can net with the property 100% occupied.\n\nNow take that number and figure at what cap rate you want to hit (if it has an NOI of 200K, and you want a ten cap, the property is worth $2,000,000.\n\nNow take that number and back out carrying cost, commissions (for lease paid) and any repairs and maintenance that is needed (try to get a contractor in there). \n\nYou should also look at what the other 47% can be renewed at (is it below or above market rents?).  You should also have an idea if they are going to stay in the future.\n\n&amp;#x200B;\n\nAnd an appraiser is going to just look at the comps you look at, and make a guess on assumptions that might not apply to you.  Also, are you working with a broker?  A good broker will have a better feel for values than any appraiser has.", "replies": [{"id": "f6xpdo4", "text": "We don't have a broker, but we are planning to occupy about 50% with our business. \n\nCurrent tenant is government and is renting 18,500sqf at $8.5/sqf annually. There's about 21,000 sqf vacant which we could rent, but we'll be occupying most of the space for our company.", "replies": [], "depth": 2}, {"id": "f6xq1cw", "text": "Here's the 'Rent Roll':\nhttps://imgur.com/rZQWD4B\n\nWe would occupy the warehouse space (15,463sqf) and possibly rent out the offices. I think the base rents are a bit inflated...", "replies": [{"id": "f6xytzg", "text": "It's all month to month. You're going to do great if you can get a renewal. But it's a govt entity. May be impossible to get a renewal. Depends what they are using the space for.\n\nI would value it vacant/proforma. Valuing rental income would be dangerous as tenant can leave on short notice.", "replies": [{"id": "f6y1uhx", "text": "So is there a way to value vacant space over rented space?", "replies": [{"id": "f6y48bo", "text": "3 ways to appraise value.\n\nIncome\n\nLand plus improvement to land (replacement)\n\nComparables.\n\n  \n\n\nYou would be using one of the latter 2.", "replies": [{"id": "f6y9arg", "text": "OK is there someone I should hire to do that? I was mainly asking if a commercial RE appraiser would be useful.", "replies": [{"id": "f6yz9pu", "text": "That is precisely the job of a real estate appraiser", "replies": [{"id": "f6z8cdr", "text": "Thanks, have you used a commercial RE appraiser? Any idea on rates? It sounds like it might run roughly $4k for the appraisal on a multi-tenant 40,000 sqf warehouse.", "replies": [{"id": "f6z90o0", "text": "Rates are different. They also vary wildly by who's ordering it. The bank gets special rates usually.\n\nAnytime you buy something, the bank will send an appraiser. So literally anyone on this sub who's 1 rung of the ladder above you has used one.", "replies": [{"id": "f6z955o", "text": "Call your title company and ask for a referral.\n\nIf you dont know what that is. You may want to learn this trade a little bit before you start throwing money at things. This site isn't one I would buy because it requires local knowledge.", "replies": [], "depth": 10}], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "f6xxno8", "text": "&gt;Now take that number and figure at what cap rate you want to hit (if it has an NOI of 200K, and you want a ten cap, the property is worth $2,000,000.\n\nThe market sets the cap rate.  If you want to buy at a 10 cap in an 8 cap market you are a lookie lou.  $200,000/8% =$2,500,000.  Nobody gonna give you a $500,000 discount.  Now if you really want to \"hit\" a 10 cap then this is your LUCKY day.  (Angels sing)  I can sell you 10 caps ALL day long.  In a 14 cap market.  I buy $200,000 NOI at 14% =$1,429,000 and sell to you at your desired 10 cap rate $200,000/10% so $2,000,000 so I make $571,000 on each transaction cause U B listening to dumb\\*sses on the internet.  Hope that is a cash buy.", "replies": [{"id": "f6y0zdf", "text": "https://imgur.com/a/f4F97CS \n\nHere's the financial projections from the brokerage. I think they're a bit inflated as the 47% tenant is only renting at $8.50/sqf yet it expects the new tenants to rent at $10-$12/sqf. Overall we're not concerned with renting the additional space as we're going to occupy most of it with our company. \n\nSo how do we determine what the market cap rate is for an area? Any ideas?", "replies": [{"id": "f6zdd8j", "text": "If you  can occupy the majority of the vacancy than you should have an advantage in the bid as in you can justify paying more (most owner occupants won't look at it and most investors will calculate the price with the above method which calculation will be less since holding cost and commission need to be paid)\n\nA deal like this can be looked at a bunch of different ways.  I'd say forget the listing brokers projections and get your own numbers from another broker (ask for a BPO on rents and sales price, it should cost you $500 but worth it)\n\nCap rates are different per area.  Check the CBRE and Colliers cap rate report for your area.  If anything I'd say that is just a starting place.  I'd call a broker who just works industrial and see if they can consult on the deal for a fee (is the listing broker paying a co-op fee for other brokers? If so get a broker to rep you for free before paying a consulting fee).\n\nIf you want to talk more. DM your info if you need to.  I've brokered multiple deals like this and have some suggestions.  I'd be happy to help out/ point you in the right direction.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "f6xpyo9", "text": "Former commercial appraiser here, and I assisted in the sale of a 36,000 sf warehouse building my employer owned last year.  \n\nI don't know if the $157,000 annual rent is gross or net, but even if it's gross it sounds like the rent would about or entirely cover a mortgage payment plus some expenses so that rent from an additional tenant would be gravy.  \n\nOn the other hand though, if the building was not originally constructed to be multi-tenant  - a longer rectangular building divided into bays, the least may be a drawback.\n\nThe building my employer owned was a big single tenant/single user type building owned by them for decades.  In 2016, just before I came on board, they moved part of they're operations elsewhere and did kind of a jerry rigged split of the space (built a wall - legally, with a permit, but utilities and other services weren't split) and leased half to a tenant. It didn't help that the rent was somewhat below market.\n\nWe got multiple offers within a couple weeks of listing the building but most were from owner occupants that hoped to have the tenant leave.  The lease was for 3 years, but the tenant had a couple of options.\n\n If the building was vacant, I estimated the property would have sold very quickly for about $1.5 - 1.6 million (the building was very old and not in great shape) but we ended up selling for $1,350,000.  \n\nAre you guys looking to own and rent out the building or flip it?  Obviously you want to pay as little as possible, and proceed cautiously if the building was not originally designed multi-tenant.  Of course it just depends on what is in demand in your market.", "replies": [{"id": "f6xqicr", "text": "Here is the Rent Roll: https://imgur.com/rZQWD4B\n\nWe're planning to occupy the remaining 15,463sqf of warehouse space and either use the offices (102 and 203) or rent them out later.\n\nWe plan to stay in the building as our business grows. It does appear the building was originally designed to be multi-tenant.", "replies": [{"id": "f6y4rh9", "text": "That all sounds great. As long as there's nothing seriously wrong with the building (I don't know anything about commercial foreclosure auctions) this could be a really great deal for you guys. Can you do any inspections or testing before closing? Does the bank have a environmental already done?  How about a survey?  I would have a comm'l RE atty look things over too; you want to be sure you can get title insurance.  \n\nIf you are going to owner occupy the rest of the bldg and the tenant's rent covers most or all of your mortgage, it's a no brainier; I don't think you need to worry about buying for bottom dollar.  \n\nI don't know where you are or what kind of market you're in, but that gross rental is at or maybe a slight bit above market for my area (2nd tier city in FL.  Expenses on warehouse buildings aren't too bad.  You can look up the property taxes now and ask insurance agent how much the insurance will be.", "replies": [{"id": "f6y98pc", "text": "Environmental &amp; Survey has been done. Do you recommend hiring a commercial appraiser?", "replies": [{"id": "f6ycgqn", "text": "Personally I would not, plus there may not be time, how soon is the auction? I would spend $$ (&amp; it won't cost much) on good, experienced comml RE counsel (not a residential closing atty dabbling) to ensure you don't overlook something in diligence.  As much as l know about comml RE after 5 yrs as an appraiser, 20 yrs as a corp RE mgr &amp; working on small development projects with my husband, I'd still have an atty  go over it with a fine toothed comb.  In my market, I'd be a bit suspicious of a commercial property that couldn't be readily  sold by a broker &amp; has to go to auction.  \n\nI've seen the craziest things; unexpected bizarre zoning that won't allow your use; issues with an incorrect legal description, a parcel fronting on a commercial thoroughfare without legal access to the road, etc.\n\nI worry a lot more about those situations than obtaining a fine tuned estimate of value.  You could do a quick ncome approach est of value by calculating the NOI of the building based on market rents and typical expenses and dividing that by the typical cap rate for warehouse in your area.\n\nHowever, this deal seems like such a no-brainer for you guys.  The mortgage payment and all expenses might total less than rent you would pay somewhere else and there's a tenant in place that will probably cover a big chunk or all of the mortgage payments.\n\nAs long as you can do a down payment without draining all your financial reserves and a few months of vacancy in the building ( if the tenant leaves, they are month to month) won't bankrupt you, this looks like a great move.\n\n20 years ago, my husband found a piece of property that would hold two small office buildings, he built two 4,000 sf bldgs , sold one and recovered a good bit of his development costs, then kept the other for his business, renting out the other side of the building. His net cost for his company's space was like $300/ month, a no brainer", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]