Must-Read Tips to Appraise, Buy, and Sell Special Purpose Property in 2020
With spring around the corner, a feeling of rebirth is in the air across Ohio. But for up-and-coming neighborhoods with a special purpose property or unique properties for sale, the soon-to-be bloom time might as well be called boom time.
Something “special” is taking place in neighborhoods throughout the Columbus region. Just look towards Franklinton (just west of the Scioto River, subdivided into East and West), the Arena District, or once-downtrodden places like the Short North Arts District (running in a narrow strip along N. High Street from the convention center to 5th Avenue).
What’s Makes You So Special? Challenges Related to a Special Purpose Property
Today, it is in the aforementioned neighborhoods that a special purpose property – buildings designed for one specific use – are being repurposed for new ventures. In Franklinton, for instance, there’s the thriving River & Rich mixed-use residential and commercial project. Built on land that was once home to the Sunshine Terrace 11-story tower, part of the Riverside Bradley public housing complex was torn down in 2012 to make way for the innovative undertaking.
Committed to 20 percent affordable housing options, the River & Rich project is a story of renewal and community rebirth via unique properties for sale. And, it is a major development that the Columbus region should celebrate.
But for commercial real estate developers, brokerage firms, and appraisers, there’s another story hiding in plain sight. Columbus’s efforts at special purpose real estate revitalization have taken decades to germinate. Likewise, similar transformations are happening, albeit slowly, in cities across the country, including, for instance, in Cleveland with the opening of a medical marijuana dispensary in a former warehouse.
The question is, why? What makes these neighborhoods and individual special use property conversions so tricky – even if there appears to be a renaissance underway?
To be sure, there is no single answer. Government and nonprofit organizations are likely to point to crime, poverty, and a lack of infrastructure. From a unique commercial real estate perspective, it’s more straightforward. Warehouse districts aren’t the only examples of sluggish turnarounds for unique properties for sale. Schools, houses of worship, historic buildings, repurposed industrial buildings, and university structures, no matter where they are located, also qualify for “special-purpose” status. And, they too, face a variety of challenges unique to their designation.
What Is It Anyway? A Special Purpose Property Definition
Legally speaking, a special purpose property definition can be illustrated as any property that has limited use or marketability in addition to features intended for singular use. For instance, the property’s layout may be distinctive or it the building’s design one-of-a-kind. Most often, when imagining a special purpose property, the following list comes to mind:
- Amusement parks
- Bowling alleys
- Funeral homes
- Golf courses
- Historical buildings or landmarks
- Hospitals or medical facilities
- Hotels and motels
- Sports arenas
However, the above special purpose property list doesn’t incorporate every property type in this niche. One of the most recognized unique properties for sale in the Columbus, Ohio region is the now-defunct Longaberger Company’s “Basket Building.” The building – shaped like the company’s famous baskets – housed thousands of employees, yet the property stood vacant since 2016. Fortunately, the co-owners of Coon Restoration & Sealants had a vision for the big basket, and are in the process of converting the office building to a luxury hotel.
There are many terms used when describing special purpose property, with special purpose and special use as the most common. Another term for special use property is unique property, as well as specialty real estate. However, these terms are all interchangeable. Just be sure to use all of these phrases when searching for special purpose property for sale, to increase your likelihood of finding all available properties in your area.
How to Find Specialty Properties
When it comes to how to find specialty properties, the beauty is in the eye of the investor. At The Robert Weiler Company, we’ve sold properties such as a 9-hole golf course and a winery. If you have a specialty property for sale, you need a specialty property buyer. As commercial real estate brokers, our job is two-fold. For our sellers, our most common challenge is assessing a building’s value in the absence of comparable structures and data. Or, if the cost of repurposing proves prohibitive, this further limits the buying pool. In other words, the value of a building is what someone is willing to pay for a similar neighboring structure – a case of “economic relativism” or market forces at its best.
On the real estate buyer side, our goal is to assist with the buyer’s vision. For instance, a historical property could be an excellent fit for several businesses. We work hand-in-hand with the investor to give them community demographics, comparables, and potential growth. From there, we work on a plan that depicts what success will look like; and ultimately, we get the buyer to the finish line.
Regardless of these obstacles, however, the special purpose property buying process begins much like with any property. Generally, think about these 3 factors as you are conducting your search:
- Location: Getting to know the area where you intend to buy is critical, especially for your special purpose property. For instance, if you are purchasing a place of worship, you want to get a sense of the community demographics. Are there enough residents who will attend religious services? Are there competing locations of worship?
- Size: Once you better understand your new community, you’ll want to choose the right size for your intended purposes. A historical home might be a great idea for a café, but how many seats can you fit within the property? A special use property for sale may come with its own personality, recognizable throughout the community; however, size restrictions may cost you the needed foot traffic in the end.
- Budget: There are several considerations when it comes to forming your budget for specialty properties for sale. That’s why special purpose property appraisals and commercial mortgage preapprovals are vital to your ultimate (buy) decision. Appraisals for these types of properties can be tricky, so make sure you read the approaches and tips we’ve outlined below.
So, where can you start your own search for special purpose property for sale? See The Robert Weiler Company’s real estate listings for specialty properties for sale. Special use real estate, as well as other commercial real estate and land for sale, can all be found on our property search page. Conduct your search by using our intuitive online database. However, before you head over there, let’s talk about special purpose property appraisal.
Special Purpose Property Appraisal 101: Putting Your Unique Properties for Sale to the Test
Before a special purpose property can be bought and sold, its value must be assessed. Similar to investigative journalists, property appraisers are there to ask tough questions and to think critically. They rely on neighborhood facts, knowledge of local history, regional and state statistics, and a healthy dose of analytical skills combined with common sense.
Many appraisers are state-licensed or certified with other third-party organizations. And, all appraisers of specialty property appraisals must adhere to strict rules of conduct, as outlined by the Uniform Standards of Professional Appraisal Practice (USPAP). According to the USPAP competency rules, the appraiser must have sufficient knowledge regarding the project in question and be competent to complete the special purpose property appraisal. Otherwise, they must state any inexperience before beginning the evaluative process on unique properties for sale.
Once all ethical hurdles are cleared, there are three main approaches used when appraisers evaluate a special purpose property’s worth: the cost approach, sales comparison/market approach, and income capitalization approach. So, special purpose properties are best appraised with which approach, you may ask? Well, let’s examine each of these common appraisal calculations and discover how they might be applied to special purpose real estate.
- Cost approach: This practice compares the special purpose property appraisal value to the cost of constructing a replica structure, while also including depreciation. Such an approach isn’t controversy-free. For instance, how reasonable is it to expect equivalent rebuilding costs? However, despite its drawbacks, the cost approach is most often used for assessing new or unique properties for sale.
- Sales comparison/market approach: This method assumes that a buyer will pay only what similar properties have sold for, as alluded to above. Similar properties mean similar features, and you can be sure that the special purpose property appraisal includes scrutiny of those features. (Picture a suburban street lined with similar-sized center hall Colonials, each on 1/3 of an acre, each built around the same year, each built with the same materials, each with two-car garages and each with central air conditioning units.) Location, size, condition, floor plan, and the surrounding area all make a difference. Often this is seen as the most accurate approach; however, comparison points become difficult with unique properties for sale – especially those that are not in proximity to one another. To localize the point: Cristo Rey Columbus High School in Downtown Columbus is not the same as Columbus Preparatory Academy roughly 7 miles away.
- Income capitalization approach: As the term implies, this appraisal approach estimates the future income that special purpose real estate may generate to determine a building’s worth. It is most commonly used for shopping centers, office buildings, and large apartment buildings. Additionally, appraisers who use this method will also want to know the rate at which an investment will pay for itself through revenue generated. Known as the capitalization rate or “cap rate,” a property’s value can vary if it will be paid off in 10 years or 20 years.
To reach a final estimate, the property appraiser will review the values returned from each of the above methods. Or, they may choose one solution, like the cost approach, preferentially.
When the Norm Isn’t the Norm: An Example of a Special Purpose Property
When it comes to appraising, buying, and selling unique or special purpose real estate, one of the most challenging aspects boils down to human emotion. This is especially true when the building in question is historical or a house of worship. Often, these twin challenges arise simultaneously.
East Boston’s Our Lady of Mount Carmel Church (located on a peninsula across from downtown Boston) is a perfect example of the evaluation difficulties these properties face. Shuttered for four years in the heart of a poverty-challenged community and also home to Logan Airport, the property value of the defunct church that’s soon to become condominiums might be diminished.
But, throw in recent local news coverage about the church, that the 114-year-old building’s rectory and convent are about to be demolished, and wistful anecdotes of happy couples saying their ‘I dos’ over the decades, and suddenly there’s an emotional appeal. Sold by the Boston Archdiocese to Franklin Grove LLC for $3 million in 2015, one wonders if, despite the current vacancy, the building has increased in value.
This scenario is what many real estate developers face. How do you determine the value of Our Lady of Mount Carmel Church? Are there other century-old houses of worship in the neighborhood? Are there other churches that have been similarly converted into condos? And if there were, what did they sell for and in what year? Franklin Grove estimates their church-condo rebuild will cost $50 million. What did other similar church-to-condo (if any) projects cost? In Boston, or elsewhere?
Answering these questions can be difficult. And even with the answers, if the unique properties for sale are not found in the same community where a property is under review, the analysis could be suspect.
Closer to home in Downtown Columbus, there is a textbook example when purchasing a historic building. But due to its special purpose property status, the developer is unsure of how the building’s reuse will look. This, too, can affect value and make resale difficult.
Billed as one of the most “endangered structures” in the city, the building, at 80 S. Sixth St., built in 1927 and sold to a developer for $3 million, had been used by a Roman Catholic Religious order as a Boys and Girls Club since its purchase in 1968. Later, the building was repurposed as the Bosco Center until May 2017. Like the Boston case, the building has been vacant for several years. Whether or not the physical structure survives this evaluative rethink or is demolished outright remains an open question. And if there’s a bottom of the 9th inning push to classify the building as “historic,” renovations and demolition may be additionally hampered, making the building less attractive to future buyers.
Thinking Outside of the Building: What to Do Next
Repeatedly with unique properties for sale, the best defense is a good offense. If you’re coming up short in finding similar real estate during the special purpose property appraisal, property owners should work with a commercial real estate firm to do the homework. Look aggressively for what you might consider “comps,” or comparisons. What are their favorite properties, and why? What makes them so similar – even if they may not appear so on the surface? It’s best to start close to the property in question. But if such examples do not exist in a given community, the property owner and the appraiser may have to look dozens of miles away. In these scenarios, fifty miles is not out of the question, as is looking out of state.
Time is a factor, too. While the majority of appraisers like to limit their property research to six months or less, often with a special purpose property, this restriction is meaningless. Simply going further back in the historical archive – property records and newspaper articles – will provide a rough analog of a similar property that the appraiser can use as an evaluation anchor point.
Here are additional tips to consider when determining the value of your unique properties for sale:
- Look for previous sales: It might seem obvious, but this is important. Unique properties for sale are often old, sometimes centuries old. It’s unlikely that the special purpose property in question has remained in the same family the entire time. That means there are property records of previous sales. Research the specialty property appraisals of those sales and adjust to current dollar values. The record might also indicate which comparison properties they used to reach their valuation. Perhaps that comparison property also still exists.
- Unique, but not holistically so: Sometimes unique commercial properties for sale are unique only with regard to one or two criteria listed in the special purpose property guidelines. This makes comparison easier to other unique properties for sale than you might realize. Consider a school, for example. At its core, is a school really all that different than a standard office building? Would it truly be so difficult to convert the school building into apartments? In this scenario, perhaps the school’s gymnasium is the most unique feature. And maybe that large indoor space could be converted into a building fitness center or even an indoor pool, or part of a parking garage.
- Know your price boundaries: Sometimes, determining a special purpose property’s value is a matter of knowing what’s possible – or reasonable – in the given neighborhood. This approach requires research. Determine what the most expensive buildings are in the community in question and also identify the bargains. Taking an average or medium of the local valuation may not provide the definitive answer you’re looking for; however, it is a helpful start.
- If all else fails, ballpark it: Despite illusions to the contrary, specialty property appraisals, as well as buying and selling a special purpose property, is not an exact science. At some point in the process, paperwork might demand an exact appraisal value. But when all else fails, offering a range of valuation and a rationalization for those figures is the best direction.
Special Purpose Property Appraisal in Any Economy
Perhaps the most encouraging news at this juncture when it comes to evaluating, buying, and selling commercial real estate of any kind is the continued health of the US economy. Even as the world’s economic engine slows and trade fears fester, the domestic outlook remains healthy.
Unemployment is hovering at a near 50-year low, the economy grew at 2.1 percent in the fourth quarter of 2019, and the total year-to-year commercial real estate transaction volume increased 2 percent to $119 billion in the second quarter of 2019. Not to mention that lower interest rates are making it easier to borrow money. As such, commercial real estate sales are sure to benefit, driving competitive appraisal values with eager buyers and sellers waiting in the wings.
At The Robert Weiler Company, a leader in comprehensive commercial real estate brokerage and appraisal services, we are committed to a personalized hometown touch. Our team also understands the many issues that the commercial real estate sector faces. As trusted commercial real estate experts since 1938, we’ve been at the forefront of some of the most notable properties in Columbus, Ohio and throughout Central Ohio.
Unique properties for sale present a particular challenge. Their uniqueness makes determining appraisal value difficult, and there’s often a limited buyer pool interested in purchasing such buildings. But with our passion, we will perform the necessary research, ask the right questions, and do our very best to determine a fair market value for your special purpose property.
Whether it’s a school building, a theatre, a religious building, a prison, a lighthouse, a geodesic dome perched on a hill, or, yes, a rusting warehouse in a once-forgotten part of town, every property has a price. And every special purpose property has a buyer.
Together, we will uncover the best value while discovering the perfect buyer. Let’s talk about your special purpose property by reaching out to us at 614-221-4286.