HomeMy WebLinkAbout4.4b Appraisal Proposal - BRKW Appraisals, Inc
BRKW APPRAISALS, INC. 2100 MINNEAPOLIS AVENUE, MINNEAPOLIS , MN 55 406
651.646.6114 www.brkw.com
October 31, 2022
Jaime Mann
Assistant to the City Administrator
City of Cottage Grove
12800 Ravine Pkwy. S.
Cottage Grove , MN 550 16
R e : Proposal f or Appraisal Services
Two Adjoining Properties with Separate Owners
Property 1 : 7155 80 th St. S., Cottage Grove, MN
Property 2 : 7130 East Point Douglas Rd. S., Cottage Grove, MN
Dear M s . Mann :
In response to your request and on behalf of BRKW Appraisals, Inc., I am submitting
this proposal for our firm to complete real estate appraisal s of the above -referenced
propert ies . It is my understanding that the City of Cottage Grove is interested in
potentially purchasing the properties to assist in proposed redevelopment of the area
containing the properties .
Purpose/Intended Use/Intended Users
The purpose of the appraisal s is to provide an opinion of the market value of each of
the two subject prope rties “as is” as of the date the y are viewed. The intended use of
the appraisal s is for assisting the City of Cottage Grove in the potential acquisition of
the subject properties to facilitate redevelopment plans for the area in which the
properties are located. The intended users are officials of the City of Cottage Grove .
The client of this assignment would be the City of Cottage Grove .
Subject Properties
Shown below is a summary description of the two properties to be appraised, based on
my preliminary research:
Property
No.Fee Owner PID #Address
Land
Area
(Ac.)1 Comments
1 Lannco, LLC 17-027-21-22-0011 7155 80th St. S.1.97 Multi-tenant retail center built in 1987 with gross
building area of approximately 17,000 SF.
Limited visibility from local major roads; high
level of vacancy. Zoned MU, Mixed Use.
2 7130 East Point Douglas Rd., LLC 17-027-21-22-0017 7130 E. Point Douglas Rd. S.1.21
1Land area is approximate and excludes existing road right of way
Single-tenant office warehouse built in 1980 with
gross building area of approximately 10,000 SF.
Essentially owner occupied by Manufacturing
Solutions of Minnesota, an industrial equipment
supplier. Zoned MU, Mixed Use.
City of Cottage Grove
Properties To Be Appraised
BRKW APPRAISALS, INC. PAGE 2
Scope of Work
Primary Valuation Methods : The three primary valuation methods used by real estate
appraisers are the Cost Approach, the Sales Comparison Approach and the Income
Approach.
The Cost Approach involves first valuing the land and then adding to that the
replacement cost new of the building and other improvements, less estimated accrued
depreciation due to age and other factors.
The Sales Comparison Approach can be used in appraising vacant land or improved
properties (land with building). This approach involves comparing recent sales of
land or improved properties which are reasonably similar to the property being
appraised . Adjustments are made to the prices of the comparable sales for value -
related differences relative to the subject property. T he result is a reasonably narrow
range of adjusted prices which indicate what the subject property likely would sell for
if offered on the market. The range of value indications is reconciled into a final,
single -point opinion of market value for the property within this valuation approach .
The Income Approach involves determining market rent for a property, based on rent
comparables from the market, and capitalizing an annual net income from that re nt
into a property value indication, based on parameters used by investors for similar
properties.
The various indications generated by the applicable valuation approaches are
reconciled into a final opinion of the subject property market value .
Anticipa ted Valuation Method (s ) To Be Applied
Property 1 – Given its high level of vacancy , it is po ssible, though at this point not
a cert ainty, that the highe s t and best use of this property will be to demolish the
building and r e develop the land consistent with MU, Mixed Use z oning, which allows
for a mix of commercial as well as mu ltifami ly development at a density of 20 t o 40
units per acre . If this becomes the conc lus ion of highest and best use , the land would
be valued , as though vacant, via the Sales C omp ariso n Approach . Deducted from this
land value as vacant would be t he estimated c ost to demolis h the existing
improvements to arrive at an “as is ” value for the property.
Alternative l y , it may be con cluded that with some a lterations in layout and/or tena nt
type (e.g., a tenant ty pe that would better fil l the building in terms of demand but
would p robably pay less rent than a tra dition al retail or service commercial tenant, yet
pro vide enough income to cover expense s and yield a net income stream to an
investor), the property would be best served from a v alue standp oint by keeping the
building on the site. If this becomes the conclusion of highest and best use , it i s
anticipated that all three approaches to valu e – Cost, Sales Comparis on and I n come –
will be applied in valuing the property.
In any event, significant analysis will be required in valu ing Property 1 since it
currently i s not in a stabilized situation , in ter ms of occupancy. Regardless of which
and how many v aluation approaches are appli ed, proper ly va luing this property with
its challenged, uniqu e situation will require significant time, effort and analysis .
BRKW APPRAISALS, INC. PAGE 3
Property 2 – This owner -occup ied single -ten ant office -warehouse building is
relatively straigh tforward, compared to Proper t y 1. The propert y does not have any
apparent significant c hallenges affecting its market value, such as low occupancy.
It is like l y the most pert inent valua tion metho d for this pr operty will be the Sales
Comparis on Approach. The s econd -most pert inent method likely will be the Income
Approach since, e ven though the most lik e ly buyer would be an owner -occupant
(where Sales Comparison Approach is give n most thought in purchase d ecisions)
rather than an inv e stor (where Income App roach is given most though t in p urchase
decisions), income c onsiderations are stil l highly relev ant in that this sin gle -tenant
building could be relati vel y easily leased , rather than owne r occup ied.
Typically , for a light industrial building constructed in 1987, t he Cost Approach
would be considered the least pert inent valuation metho d and ofte n would be excluded
f rom the appraisal , si nce the Sales Compar i son and Income App roach valu e
indi cations would pro vide a high level of credibility needed to arrive at a fi nal
reconciled property value opinion . The Cost Approac h is most relevant when the
building on a property is n ew or relatively new, with minimal depreciat ion necessary
for estimat ion and d eduction from cost new ; th e Property 2 building is 35 ye ars old
with a significant level of accrued depreciation .
Howeve r, this particular industrial p roperty is not in a typical ind u str ial location but
rather in a retail/commercial type location. Furthermore, in recent years the c ity has
rezoned and re guided the area, including t his property , for mixed use development.
As such, the value of the land component is an important factor to address in the
v alu ation, whereas it would be relativel y unimportant if the property were in a typical
industrial location , with a typical proportion of its total value lying within the land
component.
Given the above, the Cost Approach is considered pert inent for valu ing this property ,
since this approach would include estimating the land value , as well as esti mat ing the
depreciated val u e of the building and other improvements. Con sequ e ntly, it is
anticipated that all three approache s – C ost , Sales Compariso n and Income – wil l be
applied in appr a i sing Property 2 .
Report Format
Since P roperties 1 and 2 currently have separate owners, separate appraisal report s
will be pre pared for each property . The appraisals will be communicated in a
narrative Appraisal Report format. The level of discussion and detail in each report
will be similar to that contained in what is formerly known as the Summary Report
format, a report type label which was discontinued by the Uniform Standards of
Appraisal Practice (USPAP), effective January 1, 2014. The level of discussion in the
report s to be issued to the client can be best described as summarizing the subjec t
property attributes and the appraisal process, but also providing enough information
and detail to enable the client and intended users to understand the rationale for the
appraiser’s opinions and conclusions.
BRKW APPRAISALS, INC. PAGE 4
The report s will contain supporting data for the appraiser’s analysis and valuation,
including comparable sales data and the adjustments made to the comparables within
the Sales Comparison Approach ; cost computations and calculations made within the
Cost Approach ; and the presentation of rent comparable dat a as wel l as calculations
made to arrive at a valu e based on concluded net income potential in the I ncome
Approach . For an assignment su ch as that described in this proposal, each appraisal
report would likely contain between 65 and 95 pages. Additional notes, data, analyses
and other documentation supporting the appraisal are retained in the office appraisal
file.
The appraisal will be prepared in accordance with the Code of Ethics and the
Standards of Professional Practice of the Appraisal Institute, and with the Uniform
Standards of Professional Appraisal Practice (USPAP), as mandated by the State of
Minnesota.
Proposed Appraisal Fee s
Based on the anticipated scope of work involved in the assignment to appraise the two
subject propert ies and the complexity of issues that must be addressed to properly
arrive at credible opinion s of their market value (e.g ., especially issues related to the
high level of vacan cy in Property 1, which will result in the nec essity of analyzing
whether the existing building would be best kept or demolished to maximize value), I
propose the following appraisal fee s :
Appraisal Fee
Property 1 – Mul ti-tenant retail buildin g with unstabil i zed $5 ,0 00
occupancy
Property 2 – Single -tenant office -w arehouse building $3 ,2 00
Total Proposed Appraisal Fees $8 ,2 00
The total appraisal fees quoted above are based on a package assignment involving
two appraisal reports (one for each property ). The costs would differ from those
quoted if the appraisal assignment were to cover only one of the properties .
Completion Da te
The appraisal report s would be completed by Mar c h 1, 2023 .
Deliverables
A high -quality, full -color electronic copy of each appraisal report, in .pdf form at, will
be emailed to you upon completion of the assignment. Sho uld the need or desire arise
for one or more hard copies of each report as well, our firm could print, bind and mail
to you such hard copies, upon your request, with sufficient advance notice.
BRKW APPRAISALS, INC. PAGE 5
Thank you, M s. Mann , for the opportunity to submit this proposal. Please contact me
at 651-646-6114, 612 -229-9818 (direct line) or pgleason@brkw.com with any
questions or co mments you may have.
Sincerely,
BRKW APPRAISALS, INC.
Paul J. Gleason , MAI
Principal
Certified General Real Property Appraiser
MN License No. 4003073