Adventures in Property Inspections

As a MAI designated commercial appraiser, over the past 10 years, I have conducted a couple of thousand commercial property inspections, and each inspection is as unique as the commercial property appraisal.  During an inspection I am typically accompanied by the owner or the owner’s agent.  Most times the inspections are uneventful, and the owner/agent is helpful in providing insightful property, neighborhood and market area information needed to complete a comprehensive appraisal of the subject property.  However, there have been occasions when the inspection becomes eventful –

The Helpful Owner

I do occasionally encounter owners who want to point out all the subject property’s current or planned amenities that they believe will significantly impact the value.  Earlier this year I appraised an office park complex located parallel to a major highway in central Ohio.  I was advised by the lender that the complex was fully leased and thus the income approach would be required.  During the inspection, the owner shared that he thought it was vital that I consider the fact that he could have a billboard on his property which would generate additional income.  Further, the owner spent a considerable amount of time sharing his marketing brochures to clearly demonstrate the type of tenants he would soon have in the complex.  At the time of the inspection, the owner was the only tenant in the office complex, while the lender thought the property was fully leased.

The Fearful Tenant

On another occasion I was engaged to complete an appraisal of a federally funded senior housing property in Pennsylvania.  This was my second time inspecting the property, my first inspection was for the completion of a capital needs assessment and was approximately 120 days prior.  Upon my arrival for the inspection I was notified by the property manager that one of the tenants (let’s call her Carol) was terribly concerned that I was there to take her dog.  As another tenant (let’s call her Diane) stated that during my first inspection she saw me taking notes and overheard me saying Carol’s dog was too big to live in the complex and would need to be removed from the premises.  Diane made sure she shared this erroneous information with Carol.  And apparently for 120 days Carol lived in horror that her beloved pet would be taken away.  I had to assure the property manager that the information Diane shared was not accurate and that was not the purpose of my inspection.  During the inspection, I found out that Carol and Diane have an on-going feud which I assume is still going strong.

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Affordable Multifamily Housing

According to the United States Department of Housing and Urban Development (HUD), today there is nowhere in the U.S. where a full-time, minimum wage worker can afford the local fair-market rent for a two-bedroom apartment.[i] Communities across the nation are reporting high levels of evictions, homelessness, and a lack of affordable housing.

So, let’s talk about affordable multifamily housing.

Affordable housing means different things depending on if you are an investor, property manager, tenant or government agency. For me, a commercial appraiser, affordable housing represents complex property types with a myriad of funding, ownership, and rental structures that require careful consideration to define property values, fair market rents, or physical conditions. Or put more simply, affordable housing can be very complicated!

And lining up the financing for affordable housing can seem more insurmountable than trying to convince your wife Valentine’s Day is a made-up holiday– what’s the point in even trying? There are several available sources of funding including bank loans, municipal loans, Low-Income Housing Tax Credits (LIHTC), Community Development Block Grants, tax abatements, and other local subsidies or support provided by Community Development Corporations, and other specialized subsidies, tax credits and financing such as assistance by the USDA Rural Development Office (in rural areas).

While there are a lot of possible funding sources, there are often not enough to cover the development costs and it can be tricky to qualify or take a long time to get approved.

As a commercial appraiser, I understand the financial hurdles overcome by developers and providers of affordable housing and in my work, I strive to support the financial well-being of these developments in several ways:

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Growth on the Lake: The Power of Green Technology

Over the last couple of years Cleveland has really done a lot to change outsiders’ perception of the city. No longer is the city referred to as the ‘Mistake on the Lake’. In fact, recently I was on an Amtrak train traveling from Washington DC to Baltimore, and in the seat pocket was “The National”, Amtrak’s onboard magazine. And on the front cover of the National was a gorgeous plate of food and the caption “Next Stop: Cleveland – A booming food scene is helping this postindustrial city shake off the rust”. The six-page cover story featured Cleveland’s hippest neighborhoods, celebrity chefs and their restaurants.

After reading the article, I thought to myself, Cleveland really has a lot going for it – exceptional museums, cool neighborhoods, world class healthcare, it has the 2nd largest theater district in the country, stellar higher educational institutions, home of big budget film productions and a championship sports team. And on top of all that, Cleveland is becoming known for making real advances in green technology.

Lake Erie TurbineCleveland, like most metropolitan cities has its environmental issues, whether that be runoff from urban fields or commercial sites contaminated by prior use or contaminated sediments at the bottom of Lake Erie. Cleveland is starting to find unique solutions for these issues.

One of the region’s greatest assets is the Great Lakes, which provide freshwater for drinking, transportation, power and recreation. And 21% of the world’s supply of freshwater comes from the Great Lakes.

So, I am happy that the U.S Army Corps of Engineers (ACE) and the Ohio EPA are working together to find a better solution for where to put the sediment dredged from Lake Erie, a solution that does not include dumping the sediment back into Lake Erie. Recently, it was reported that they are exploring the solution that the Port of Cleveland is using to re-purpose sediment. The Port contracts with a supplier that recycles the dredged sediment and uses some to restore wetlands near the harbors being dredged and sells some of the clean sediment to construction companies to use on their sites. Re-purposing prevented the need to build a containment dike, thus saving the Port of Cleveland $150 million.

Another green technology project in development is the placing of six (6) 3.45-megawatt wind turbines eight miles off the shore of Lake Erie. The goal of putting wind turbines in Lake Erie is to funnel renewable energy into Cleveland’s Public Power infrastructure, enough to generate energy to power 7,000 homes.

Initiatives like these are exciting to see as they build on Cleveland’s strong science and technology competency and continues to diversify the area’s economy. A diversified economy attracts diverse talent from all over the world. The need for more talent can help to increase the area’s population and ultimately increases the need for housing, retail and infrastructure development. All of which are things needed for a thriving city. It’s nice to see ‘Growth on the Lake’.