Office Building Appraisals

Commercial real estate appraisals of office buildings in and around Denver can vary in scope of work and appraisal report types. The age, condition, property characteristics and other factors may influence the scope of work completed in an office building appraisal. The requirements of the client and the purpose of the appraisal are also significant considerations a commercial real estate appraiser considers when determining the appropriate scope of work. Different real estate appraisal options and costs of commercial real estate appraisals discussed at the bottom of this page.

This page depicts some of the church properties that our commercial real estate appraiser, Phil McDonald, has appraised. If you would like to discuss your appraisal needs with our appraiser you can call us at 720-310-2726 or click on the button below to send us a message.

Spotlight

Reduce The Cost of an Office Building Appraisal

The characteristics of an office building and the purpose of the office building appraisal can, at times, allow for a more limited appraisal and streamlined appraisal report. The cost of a commercial real estate appraisal is determined by the complexity of the assignment, amount of work required to complete the commercial appraisal and deliver the appropriate commercial property appraisal report. When it is appropriate to limit the amount of work required to produce a credible appraisal report, the cost of a commercial real estate appraisal is reduced.

A commercial real estate appraiser considers three approaches to value on every commercial real estate appraisal assignment. These approaches are the Sales Comparison Approach, Income Approach and Cost Approach. If all three approaches are applicable a comprehensive commercial property appraisal will include the development and reporting of all three approaches to value. Often times, one or more of the approaches to value can be eliminated which results in a lower commercial appraisal cost. Here are a few examples of office buildings where a lower cost commercial real estate appraisal may be appropriate.

An owner user office property configured for use by a single tenant/owner may not be an income generating property and the typical buyer may be an owner user considering the functional utility of the office building and not the potential income in terms of future rent that the property would generate. For this type of property, the Sales Comparison Approach to Value may be the best indicator of value. At times, a limited scope of work and abbreviated appraisal reporting format may be appropriate for this type of property.

A multi-tenant office building is generally an income producing property and the typical buyer for this type of property would be an investor who makes a purchase decision based on the anticipated future income the property can be expected to generate. In this situation, the Income Approach to value may be the best indicator of value. On occasion, a limited scope of work and shorter valuation report may be appropriate.

An older office building property may have significant depreciation and would not be comparable to a brand-new office building. The Cost Approach estimates the replacement cost of a property and arrives at a value of the property as if it were a new property. The estimated depreciation of the property is then reduced to arrive at a conclusion in the Cost Approach. When an office building is older with significant depreciation the Cost Approach is typically less reliable than other approaches and may not be necessary.

Increase the Value of Your Office Building

There are many ways to increase the value of a property. Some are more effective than others and produce a higher return on investment. Here are some of the things you can do right now to increase the value of your office building.

Often the easiest way to increase the value of your office building is to increase non-rental income. This can also have the highest return on investment. If done correctly, this can also lead to higher tenant retention and even higher lease rates.

Do not increase non-rental income by charging for facilities and services already included, that will backfire. Instead, provide additional service to your tenants to increase non-rental income. This can lead to greater tenant satisfaction while increasing revenue and increasing the value of your office building.

Vending, parking and advertising are common areas of other income. If you already provide some or all of these here are some ways to increase this other income. Negotiate upgraded vending offerings with your vending provider to include a better selection, better vending machines and better vending locations can increase vending sales without increasing cost. Promote the upgraded vending options to tenants.

If you do not currently charge for parking, do not begin charging every tenant for parking. The free parking is already included in the terms of the lease. However, unless your lease includes specific parking spaces, you can continue to provide your tenants free and appropriate onsite parking and still increase other income from parking. Some tenants may be interested in paying for reserved premium parking for their staff or customers. Reserve some premium spaces and increase parking income without incurring significant cost.

These are just a few illustrations of how small changes in service provided can increase other income. New advertising opportunities, enhanced janitorial, converting unused building area to secured storage, providing internet, secretarial, support services and off hours renting of parking, event space or other facilities are a few more ways to increase other income.

The “other Income” line item of your income statement is a small number in relation to your rental income and this may not appear to have a significant impact on the value of your office building.

Income Capitalization

The cost to increase other income is typically low or even nothing more than some effort. While this change is not going to double the value of your office building, it will produce a great return on investment and will have a more significant impact on the value of your office building than it may appear. An increase in other income, after deducting any direct expenses, (net other income) of $1,000 a month, or $12,000 a year is already a good return for a little effort and creative thinking. However, the impact is much more significant when that income is capitalized into a value conclusion. An increase in net other income of $12,000 at a 6.0% capitalization rate indicates an increase in the value of your office building of $200,000. Now you realize a great return for a little effort and creative thinking.

There are many other ways to increase the value of your office building, if you would like more information on this topic or have any questions, just send us a message. We are always happy to help.