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Assessing Risk to Commercial Properties

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In the coming months, as many in the commercial real estate space will be making challenging decisions due to the effects of COVID-19, it will become increasingly necessary to assess the risk inherent in them as accurately as possible. In this article, we’ll first discuss some general guidelines for property risk assessment then cover some broad market trends especially relevant to California. Finally, we’ll detail how to obtain a Valbridge Property Risk Assessment Report for a specific property, and indicate how you can obtain a free sample report.


While general market trends are essential to monitor and understand, it is also true that each sector of the commercial real estate economy will perform differently. Understanding the micro-level realities unique to a property or a limited portfolio will be critical to making wise decisions on specific sites, investments, and development opportunities.

(For more on how various sectors are performing, and the variability inherent across CRE during 2020, please see our Special Report on the Impact of COVID-19 on Commerical Real Estate from June 2020).

When undertaking a good risk assessment analysis, it will be important to consider factors such as location, physical characteristics, economic occupancy, and the overall property sector.

It is important also to physically inspect a building, to obtain a property level view of current conditions, and to answer questions like:

  • Is there true vacancy with empty space?
  • Has there been major deferred maintenance?
  • Do any residual effects exist from changing city or county use permissions, protests, etc?

These site-specific features should be understood alongside a Commercial Location Score (CLS), created by Moody’s Analytics, which takes into consideration six factors including:

  • Economic prosperity
  • Business vitality
  • Spatial demand
  • Transportation
  • Amenities
  • Area safety

Understanding the impact of these factors individually and in the aggregate helps business owners and investors determine the locational strength of a given property and/or area. A commercial location score is useful in that it quantifies “qualitative” characteristics through a standardized approach and score, utilizing both traditional and non- traditional data sets. CLS scoring provides the following:

  1. A nominal score (400-1,000) and a breakout of the nominal scores for each of the six categories;
  2. A percentile rank for the composite score and each category relative to the specific market; and
  3. A breakout of the component weights used to compute the composite score.


As mentioned above, a good understanding of both overall market trends and trends specific to a property sector and submarket will be instrumental in property assessing risk. Statistical forecast analysis has as its basis the proposition that past statistical relationships hold into the future, and knowledge of those correlations, current data, and perhaps some assumptions about data not yet known, lead to the forecast.

UCLA Anderson Forecast - the leading independent economic forecast of both the U.S. and California economies for over 65 years - has very recently released a Commercial Real Estate Survey and Index to better predict future California commercial rental and vacancy rates (sponsored by Allen Matkins). This report, which you can read in full here, surveyed supply-side participants (e.g. commercial developers and financiers of commercial development) for insights into their markets in order to provide a measure of their view of current and future conditions. The results are helpful in our process of assessing risk, and provide some of the most up-to-date data available for particular market sectors in California.

It’s worth pulling out a few sector by sector highlights from this report to help add some context to risk assessments you might undertake or order in the coming weeks and months.

For OFFICE MARKETS, sentiments were generally gloomy. As in 2008, it is likely that we will see an ongoing decrease in new office construction over the coming three years. From the UCLA report:

Although half of the Bay Area and Southern California panelists said their plans for the coming 12 months were unaffected by the pandemic, one-third are ramping back development by more than 15 percent from their previous plans. Overall, 75 percent of panelists expressed some stress with current tenant leases. For the one-third that will engage in some new development, the panelists in each market believed that land, building materials, and labor costs would be more favorable. Given the uncertainty about office space demand, these responses seem reasonable and indicate growth in development beginning in late 2021 and a slow return to pre-recession levels.

The outlook for RETAIL MARKETS is probably the worst of any sector, for reasons we outlined in our previous Impact report. UCLA’s report agrees with those root causes, and predicts that:

the pessimism an extension of the trends from the past three years. The current view is that retail properties will be generating significantly lower, if any, returns in 2023 compared to the middle of 2020. In the Bay Area and Southern California, two-thirds of panelists will not develop any new properties in the coming 12 months. Approximately the same percentage expect difficulty with current leases and expect plummeting property values.

However, opportunities do exist: in Southern California specifically, about a third of those surveyed planned to undertake new retail development or re-development projects this year.

California’s housing shortage is not news, and the impact of the pandemic on MULTIFAMILY MARKETS will likely intensify the demand for more housing that has been a constant in the market for some years now. UCLA’s report predicts a fairly quick turnaround in this sector once the acute phase of the pandemic is over, noting that

As the economy grows, the demand for housing in the Bay Area and Southern California will grow alongside it. Though the UCLA Anderson Forecast is looking at a 30-month recovery in the state, and there remains a great deal of uncertainty with regard to the current public health crisis, the market for multi-family housing remaining robust seems likely.

“It is hard to envision a scenario in which COVID-19 and its fallout could remedy the underlying housing affordability issues that California faced coming into 2020. In light of that ongoing concern, we expect demand for multi-family housing to continue to be high."

INDUSTRIAL MARKETS, like multifamily, are likely to fare well, having experienced consistently high occupancy and rental rate growth over the past several years. While a recalibration of the market is predicted, there is good potential for positive outcomes here as well, notably:

If the demand for warehouse space and the stock of warehouses are increasing at about the same rate as projected, then 2023 will see a mild erosion of rental rates when adjusted for inflation, and there remains the possibility of some erosion in occupancy. However, that does not mean that industrial space markets will be depressed, rather that they will not be as imbalanced as in recent years.

Taken as a whole, the predictions and forecasts for the market make one thing clear: while the overall impact of the pandemic will be felt for some months to come, opportunities are certainly available to smart and savvy players, which is why this is certainly a major takeaway:

Assessing site-specific risk properly in such a volatile market is even more important than ever before. Obtaining accurate, up-to-date, and quantifiable information, and combining it with larger market trends, will help you make informed decisions in the coming months.

While you can certainly assess risk yourself, it often makes sense to go with an expert in valuation like Valbridge Property Advisors - our market specific knowledge combined with a rigorous approach to risk assessment makes our reports particularly valuable during this difficult time.


Valbridge Property Risk Assessments combine detailed market analyses, site inspections, and the Moody’s Analytics Commercial Location Score. The resulting data is used to develop a unique, site-specific Valbridge Risk Score. This score can be used to make informed, real-time decisions regarding CRE investments, using data-driven technology to analyze variables that affect value.

You can obtain a sample of a risk assessment report or order an assessment for a specific property by contacting our offices; one of our local market experts will be in touch with you right away to discuss next steps.


Valbridge Property Advisors have the largest independent commercial property valuation and advisory services firms in the U.S., with 200 MAI- designated appraisers, 74 office locations and more than 675 staff across the nation. Valbridge provides independent appraisal services consistent with the highest industry standards of practice. Each Valbridge office is led by an appraiser who holds the MAI designation of the Appraisal Institute.

Fair Market Rental Value in Commercially Leased Spaces: Considerations for Landlords & Tenants (Part Three)

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Part One covered the basics of Fair Market Rental Value. In Part Two, we outlined the process of choosing an appraiser - and why that matters so much. This final installment in our series will cover other important considerations for landlords and tenants undergoing the FMRV process.


Considerations for both landlords and tenants

Our investigation of the Fair Market Rental Value (FMRV) process has highlighted the basic theory behind the practice, as well as the most common methods of arriving on a mutually agreeable rental value for the renewal of a lease.

There are, however, a number of considerations that both landlords and tenants should bear in mind. Ideally, one will take these into account when drawing up the language of the original lease, as it will be much more difficult to insert them into the process later. Let’s examine a few possible scenarios.

Recall our hypothetical tenant, Meredith, with her 1300 sq. ft. bakery/cafe. Let’s imagine that when she took over the space, she had to make a number of improvements in order for it to be a functional space.

Tenant Improvements

Should Meredith’s improvements be factored into the FMRV? If Meredith were to leave, the landlord would be able to lease out a fully improved space at a much higher rate than he would have been able to let the space Meredith originally inhabited.

Did Meredith receive any reimbursement for her improvements, or did she get a reduction in her rent along the way?

What about Meredith’s presence in the location? She could argue that her business anchors (for example) a small strip mall, which would decrease in value if she were to leave. Her bakery cafe brings foot traffic and more consumers, raising the value of the space at the entire shopping center. Should she have to pay more rent now because she’s built a successful business?

The answers to these questions should ideally be written into the original lease, specifying how each will be handled when the renewal process begins. Structuring these considerations well in advance will also allow Meredith and her landlord to foresee their expenses, investments, and potential returns before embarking on major projects.

Right to Arbitrate = Right to Renew

In Part Two, we covered the Baseball Arbitration method. It is not uncommon to confuse “mediation,” “arbitration,” and “appraisal,” in casual language, but these are in fact three very different things. In mediation, the two parties (e.g. Meredith and her landlord) meet with a neutral mediator and try to come to an agreement without binding determinations by a judge or arbitrator.

In arbitration, by contrast, a neutral party acts like a judge and makes binding decisions (as in the Baseball Arbitration method). Whichever party loses cannot decide that they do not want to abide by the agreement - they are bound by the decision of the arbitrator. This process almost always involves legal representation.

Finally, an appraiser may be involved in all of these processes, but is not resolving disputes or making judgements. The appraiser is only making a determination of value according to the terms specifically provided in the lease. He or she cannot tell Meredith or her landlord what the lease means, whether it is fair, unfair, whether it has been breached, or make any other determination other than a valuation of the commercial property.

It is critical to note that not every lease includes an automatic right for a tenant to renew. Many leases do include a renewal right, and good ones specify the FMRV determination method. But without a right to arbitrate, there is effectively no right to renew.

For example, let us imagine that Meredith’s lease doesn’t include a right to arbitrate. Perhaps her landlord has discovered that he can charge another tenant with a similar business a much higher rent, and he quotes Meredith an extremely high renewal rate. Without a right to arbitrate, there is no guarantee that Meredith’s landlord has to accept a reasonable renewal rate from her. It is an obvious ploy to force her out, but one that could have been avoided had the lease included a right to arbitration clause.

Again, good advance planning and appropriate expert advice (whether from a real estate attorney, or an appraisal expert) could help forestall many difficulties down the line.

It’s All In the Timing

As is doubtless apparent, the negotiation process over FMRV can in some cases be a protracted one. What happens in the interim?

Does Meredith, for example, pay her old rent until a new rental value is established? Or is she required to pay the new rental rate from the beginning of the new lease period retroactively once a figure has been agreed upon?

It is wisest to include deadlines in the original lease specifying that the new rental rate be determined before the end of the old lease. That way, if neither party is satisfied, they both have time to make other arrangements, and there is no confusion about the rates for the new leasing period.

Fair Market Rental Value, when handled well and with foresight, can help both landlords and tenants continue in a mutually profitable business relationship for many years.

However, it is a complex negotiation that can trip up the unwary, the unprepared, or the uninformed, so securing expert appraisal services and advice is a smart investment for all parties at every stage of the commercial leasing process.

If you or your clients might need appraisal services related to fair market rental value, or any other kind of commercial real estate valuation, please email us at or call us at (626) 486-9327.


Fair Market Rental Value in Commercially Leased Spaces: Appraisal Methods (Part Two)

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Part One focused on the basics, and in Part Two, we’ll cover the common appraisal methods to arrive at a new rental value. Getting this right is key to a FMRV that is fair and equitable for both parties, so selecting the correct method is vital!


Part Two: Choosing an Appraiser?

Part One discussed the basics of a Fair Market Rental Value (FMRV) process - what it is, when it arises, and who might need one. We are examining these concepts through a hypothetical case of a small commercial bakery on a ten-year lease. Our tenant, Meredith, has leased a 1300 sq. ft. space to house her commercial bakery and coffee shop on a 10-year lease, which is due for renewal. Both the landlord and Meredith want to re-up, but both also want to ensure that the rent paid is fair and equitable. Naturally, Meredith wants the rent to be as low as possible, while the landlord wants to obtain a good return on his or her investment. Recall that FMRV is based on an analysis of comparable properties with comparable leases.

So who chooses comparable leases of comparable spaces? That’s the job of an appraiser.

That appraiser can be hired by the landlord or the tenant, or negotiated between them according to a prearranged system. Sometimes this will have been specified in the initial agreement, and sometimes not. If you’re in the process of writing a lease or considering signing one, taking this into account at the beginning of the process can save a lot of trouble and negotiation down the line.

There are three common methods of choosing an appraiser and/or agreeing on a valuation: the Average Method, the Three Broker Method, and the Baseball Method.

The Average Method

This is probably the simplest method, but also the one most prone to poor outcomes. The landlord and the tenant each hire an appraiser to determine fair market rental value based on a set of common criteria. If the two appraisers’ valuations don’t match (which is likely), the amounts are averaged, and the resulting figure is declared the fair market value rent.

This method is fairly unsophisticated, and also prone to manipulation. Either party, for example, could game the system by submitting an abnormally high or low valuation. Maybe Meredith hires an appraiser who deliberately turns in a valuation well below average, which, when combined with her landlord’s fair appraisal, results in a rental value that is a veritable steal for Meredith. Conversely, her landlord could employ an appraiser whom he knows will return an astronomical valuation. Moreover, it is entirely possible that an average of two appraisals could result in a rent that is not at all consistent with comparable leases of comparable properties. For that reason, many experts warn against adopting the Average Method.

The Three Broker Method

Because the Average Method is inherently problematic, some leases opt instead for a slightly adapted version. In the Three Broker Method, Meredith and her landlord each hire an appraiser. If the two appraisers agree on a fair market rent, the process is at an end. If, however, they cannot agree, then the two appraisers will instead agree on a third, impartial appraiser, who will independently calculate fair market rental value. (In some variations of the Three Broker Method, an average of the three valuations is used instead of the third appraiser’s valuation.)

This is a popular option, as it incentivizes both the landlord and the tenant to choose reasonable appraisers in the first place to avoid further cost. However, it can be more expensive if a third appraiser is needed, and certainly it is possible that disputes might arise surrounding the third party’s valuation. Furthermore, there is no guarantee that the third appraiser will not make an unreasonable valuation or an arbitrary decision.

Certainly the Three Broker Method is preferable to the Average Method, and it is very common in commercial leases, but if either party can foresee that the negotiation process might become contentious, they might be best served by the final method.

The Baseball Method

Few organizations are better at complex negotiations around value than Major League Baseball, and this final method is based in their player arbitration system. In the Baseball Method, the landlord and Meredith would each submit an estimate of fair market value to a neutral arbitrator whom they have mutually selected: what does Meredith think a fair rent would be, and what does her landlord think is fair?

The arbitrator must select one of the two proposals. He or she cannot average them or suggest an alternative, but is required to accept one option on the table, which then becomes binding.

Choosing a good arbitrator can mean that this method is most likely to produce an equitable and reasonable result, but it is also by far the most likely to be expensive, lengthy, and difficult. Because it is a binding arbitration process, each party typically hires an attorney, and has legal fees, arbitration costs, and potentially appraisal costs as well to consider.

On the other hand, baseball arbitration incentivizes both parties to submit reasonable estimates. If, for example, Meredith submits an estimate of fair market rental value that is largely reasonable, if a little on the low side, while her landlord is sky-high, the arbitrator is almost certain to select Meredith’s estimate. The lack of compromise in this method is what drives both parties to be less partisan in their estimates.

Specify the method in the lease

No matter which method of establishing FMRV is chosen, the best method to avoid future conflict is to specify it in the original lease. Language like this, for example, would ensure that Meredith and her landlord undergo the Baseball Method when it comes time to re-negotiate her rent:

  • “Each party shall submit to the arbitrator and exchange with the other, in accordance with a procedure to be established by the arbitrator, its best offer. The arbitrator shall be limited to awarding only one or the other of the two positions submitted.”
  • “The parties agree that they will exchange and provide to the arbitrator a copy of written proposals for the value of market rent.  In rendering a decision, the arbitrator(s) shall be limited to selecting only one of the two proposals submitted by the parties.”

Understanding the various methods, their pros and cons, and specifying one preferred method in the original leasing language can save both parties a tremendous amount of money, time, and trouble down the line.

In Part Three of this series, we’ll examine some specific concerns landlords and tenants might have surrounding Fair Market Rental Value, and what to do about them.

If you or your clients might need appraisal services related to fair market rental value, or any other kind of commercial real estate valuation, please email us at or call us at (626) 486-9327.



Fair Market Rental Value (FMRV) in Commercially Leased Spaces (Part 1 of 3)

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Determining fair market rental value is critical for both landlords and tenants. This three part series will explore important issues that will help you and your clients make better choices. 

What is Fair Market Rental Value and How Does It Work?

In many areas of California - and in many other rapidly developing areas across the country - real estate values are rising sharply year over year. If a space is leased for a number of years, how can both landlord and tenant ensure that  it is a fair and sustainable rate? This is exactly the point that fair market rental value (FMRV) appraisals seek to answer. In this article, we’ll examine the FMRV process through a hypothetical case study. Sometimes the concepts can seem rather abstract, but by placing them into a real-world scenario, it’s easier to understand how they might impact the concerns of both landlords and tenants.

Concerns about fair market rental value arises most commonly in two scenarios. First, it comes into play when there is the option to extend a lease beyond its current terms. Should the rent go up, go down, or remain the same? A FMRV appraisal can help create a fair outcome for both parties.

FMRV appraisals are also often ordered when a new landlord inherits a building, perhaps from the terms of a will or trust. Are the rents that are currently charged fair? An FMRV appraisal can help establish that.

Meet Meredith. Let’s imagine that Meredith wants to turn her small home-based bakery into a larger commercial space, converting a successful pastry line into a limited-service cafe. She envisions a comfortable, neighborhood space where customers can enjoy a cup of coffee and a delicious pastry, and where she can also feature local jams, artisanal food products, and occasional live music or cooking demonstrations. But Meredith doesn’t have a lot of money, so she’s looking at leasing a restaurant space in a less desirable area and hoping that, over time, she can grow with the neighborhood.

Meredith finds her ideal space - it’s 1300 sq ft, available for an initial 10 year lease. Meredith signs a modified gross lease. That means that she pays her rent in one lump sum, which can include property taxes, insurance, and common area maintenance. In Meredith’s case, trash is included but all other utilities and janitorial services are her responsibility. Modified gross leases tend to be more tenant-friendly, since they are easier to set up and manage.

This also allows Meredith to predict her expenses. If, for example, property taxes or insurance rates change, the landlord absorbs the difference and Meredith’s rent stays steady. She’s paying $30/sqft, or $3250/month, in 2018. Meredith and her landlord agree that she will have the option to renew her lease in 10 years, in 2028. Because neither of them want to set a specific dollar amount given the unpredictability of the California real estate market, they agree that the renewal rate will be mutually determined in the future based on fair market rental value (FMRV) – a very standard provision in many commercial leases.

But what does that actually mean? Here is the first critical element to understand: fair market rental value is established based on comparable leases of comparable spaces. Let’s explore that concept in more depth.

Comparable leases of comparable spaces

Fair market rental values are established by looking at similar commercial spaces that are leased in the same area, in the same way that one establishes the value of a property before selling it by comparing similar properties in the area. So if Meredith is located in North Hollywood, comparable leases of comparable spaces would include commercial leases on similar square footage, for similar uses, with roughly similar features and agreements. That means that a 1500 sq ft Chinese takeout two blocks away on a 3 year modified gross lease would be a useful property to consider, while a 1300 sq ft bakery located in Santa Monica would not.

Meredith’s landlord wants to charge a higher rent than he’s currently getting. After all, he could (presumably) find a new tenant who would pay much more than Meredith is paying. But Meredith points out that her cafe and its success and attractiveness to customers is an integral part of why the area is more desirable than it was ten years ago. She also doesn’t think that she should have to pay a higher rent because she’s made improvements to the space  - after all, that would be like paying for those upgrades twice!

Selecting comparable leases of comparable value is a critical part of establishing FMRV; it’s easy to imagine how cherry-picking properties could lead to a fair market value that would be heavily biased in one direction or the other. It is obvious, then, that establishing an impartial appraisal is critical to an equitable FMRV.

So who chooses comparable leases of comparable spaces? That’s the job of an appraiser. That appraiser can be hired by the landlord or the tenant, or negotiated between them according to a prearranged system.

In Part Two of this series, we’ll investigate the primary methods by which an appraiser can be chosen. Part Three will outline other considerations that landlords and tenants should bear in mind when establishing agreements, leases, and negotiating new rental rates.

If you or your clients might need appraisal services related to fair market rental value, or any other kind of commercial real estate valuation, please email us at or call us at (626) 486-9327.


Give Now! 2018 Tax Changes on Lifetime Gift & Estate Provisions

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There’s never been a better time to give: with the provisions in the 2017 tax bill, estate planners and real estate investors are looking at lifetime gifting as a way to maximize their long-term strategies.


As you’ll remember from the debates surrounding the new tax code, in addition to many business-positive changes, the 2018 law temporarily (and controversially) doubled the exemption amount for estate, gift and generation-skipping taxes from the $5 million base (set in 2011) to a new $10 million base, for tax years 2018-2025.

 The exemption is indexed for inflation, so an individual could realistically shelter $11.2 million in assets. With proper planning to take advantage of portability, a couple could exclude $22.4 million for 2018. The law is set to sunset in 2025, and opinions remain divided on whether or not it will do so.

In the meantime, everyone agrees on one thing: whether this is a temporary measure or a permanent one, there’s no question that this is the moment to do some very serious estate planning. “One does not need to die before 2026 to take advantage of this increased exemption, since it can be used for lifetime gifts,” said Beth Kaufman, an estate tax lawyer at Caplin & Drysdale and former associate tax legislative counsel at the Treasury Department.

So if, for example, you expected to live for at least another twenty years, you would presently have an $11.2 million (or $22.4 million if married) exemption level, which in seven years might or might not fall back to $6 million. But if you were to gift your children, heirs, or charity $11 million today instead of at your death, you would in essence be able to give them an extra $5 million dollars tax free.

Thus, many estate planners are encouraging that families, trusts, and individuals take advantage of strategies based in gifting, like:

  • Making gifts to existing or new irrevocable trusts, including generation-skipping trusts;
  • Leveraging gifts to support the funding of life insurance or existing sales to trusts; and
  • Pairing gifts with philanthropy (such as a charitable lead trust).

It is also worth noting that the new tax bill creates a new 20% deduction for pass-through businesses, which is especially relevant for estates and trusts. ​For taxpayers with incomes above certain thresholds, the 20% deduction is limited to the greater of: (a) 50% of the W-2 wages paid by the business, or (b) 25% of the W-2 wages paid by the business, plus 2.5% of the unadjusted basis, immediately after acquisition, of depreciable property (which includes structures, but not land). REIT dividends and distributions from publicly traded partnerships are not be subject to the wage restriction.

Also noteworthy for those with real estate investments is the fact that ​the bill preserves the 20% tax credit for the rehabilitation of historically certified structures, but taxpayers must claim the credit ratably over a 5-year period. The bill does, however, repeal the 10% credit for the rehabilitation of pre-1936 structures.

“Many of the provisions passed will have a positive impact on investors by putting more money back into their pockets in terms of tax savings,” said Michael Episcope, co-founder and principal at Origin Investments, a real estate investment firm that acquires primarily office and multifamily properties. “Some of the changes to the tax treatment of capital expenditures, for example, will shield a tremendous amount of income for property owners that are making capital investments and improvements in properties,” he says.

So whether it’s considering how to restructure a trust or making a gift now instead of in the future, the options are wide open in a way that they have never been before.

If you or your clients might need appraisal services related to the tax code’s updated provisions surrounding gift and estate taxes, date of death appraisals, or any other kind of commercial real estate valuation need, please email us today at ​​ or call us at (626) 486-9327.



Two recent housing ordinances seek to address LA's homeless crisis

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More than 34,000 citizens of LA are homeless, and an estimated 25,000 are living without any shelter at all.

Last year, the city passed Measure HHH, a $1.2 billion measure to build 10,000 units of housing for homeless people over the next decade. That project — a long-term strategy for combatting homelessness — is underway. However, in the interim, the city is proposing two additional ordinances to ease the transition into permanent housing and to address the immediate need for shelter.

One ordinance, the Proposed Permanent Supportive Housing Ordinance (or PSH), is designed to streamline the process of getting to those 10,000 units. Under the PSH, normal zoning laws and parking regulations would be relaxed to allow construction to proceed more rapidly. The ordinance is also proposing allowing by-right construction of multifamily units on land that is currently already zoned for public facility (providing that there are other existing multifamily developments already in existence nearby). Each permanent supportive housing project could receive up to four zoning concessions, including:

  • Decreases in setback requirements
  • Decreases in required open space
  • Increases in lot coverage limits
  • Increases in allowed height & floor ratios

While the PSH seeks to streamline the construction process, the second ordinance is designed to address the immediate and urgent needs of those who lack shelter. The Interim Motel Conversion Ordinance would allow existing residential structures, like hotels, motels, and hostels, to undergo interior renovations and repurpose themselves as transitional housing for homeless people.

According to an article by Urbanize.LA, 2016 data from the LA County Assessor’s office shows that LA currently has about 10,000 total guest rooms. The majority of motels (about 83%) have fewer than fifty rooms, with the average being 26. The IMC ordinance would permit these buildings to serve as transitional housing over a half year to two year period for people who are moving off the street or out of shelters and into permanent supportive housing.

Both of these ordinances are especially timely, as Mayor Eric Garcetti reported this year that LA’s homeless population had swelled by 23%. The largest increases were in younger people, between the ages of 25 and 54. The population of veterans who are now homeless also jumped substantially, up 57% from the previous year.

According to the Homeless Services Authority, the major culprit for the dramatic rise has been the economic stress on renters in the LA area. As the LA Times reported:

More than 2 million households in LA & Orange counties have housing costs that exceed 30% of income, according to data from Harvard University’s Joint Center for Housing Studies…[while] according to the nonprofit California Housing Partnership Corp., median rent, adjusted for inflation, increased more than 30% from 2000 to 2015, while the median income was flat.

And as housing prices continue to rise in Southern California, the problem of homelessness motivated by economic distress and the inaccessibility of affordable housing seems likely to only intensify. While the first multifamily dwelling funded by Measure HHH is going up in Rampart Village, more will need to happen to substantively address the housing crisis that is affecting all of Southern California’s residents, both those on the margins and those who have already moved to the streets.

If you or your clients might need appraisal services related to the City of Los Angeles’ homelessness ordinances, or any other kind of commercial real estate need, please email us today at or call (626) 486-9327. 



Property Owners Feeling The Pain Over LA's Earthquake Retrofit Ordinance

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Seismic retrofits are a major financial consideration for LA property owners.

In 2015, the LA City Council passed some of the nation's most stringent seismic regulations, requiring the retrofitting of some 15,000 commercial buildings (mostly multifamily apartment structures). This unanimous vote required all structures with so-called "soft story" construction to be updated & retrofitted to withstand earthquakes (or demolished).

These buildings are a common sight in Los Angeles - especially popular after WWII, they largely feature wood frames with tuck-under parking. While that form of construction was a timely solution to a space crisis as the city expanded during the second half of the twentieth century, it also proved to be a deadly condition during earthquakes. In a large enough quake, flimsy wood or metal supports collapse, bringing the building down and flattening the ground story. More than 65 people have died when these sorts of collapses have occurred in LA's larger quakes (in 1971 and 1994).

The city of Los Angeles conducted an exhaustive survey - both on paper, combing through city records, and on foot, walking block-to-block - to identify vulnerable structures. Those requiring the retrofit typically are both:

  • Residential buildings of 3 or more units
  • Multistory wood-framed buildings with one or more sides of the ground floor open (especially for tuck-under parking), constructed before 1980

Almost all owners of affected buildings have been notified (the last round of notices will go out in September and November of 2017), and all work is to be completed by 2024. As of June 2017, about 15% of affected buildings have been the retrofitting process.

While nearly everyone agrees that improved disaster preparedness is an excellent idea, there is little consensus on who should pay for it. Nor are these updates a minor undertaking: according to the law, owners are required to pay for the retrofits, which can cost between $60,000-$130,000 (or more for larger buildings). The city has agreed that owners can pass on part of those costs to tenants, but that they only are permitted to increase rents by $38/month. This leaves property owners responsible for navigating how to pay for their improvements on the city's seven-year timetable, even as lawmakers investigate other options (including tax breaks or other forms of financial aid).

A popular option in other cities (notably San Francisco) has been to obtain separate "seismic financing" to cover the cost of the retrofit. The first step to obtaining such financing, of course, is to get a high-quality commercial property appraisal. And for some LA property owners, this may be an avenue worth investigating: Jim Clarke, who represents the Apartment Association of Greater Los Angeles, a property owner's group, voiced his concerns to the LA Times in 2016.

"Many of the owners are older 'mom and pop' landlords who invested their retirement in one building, live in one of the units, rely on the rent as income, and cannot easily afford a costly retrofit, he said."

For such individuals, seismic financing may help to bridge the gap between rent increases, city assistance, and the actual cost of retrofitting an old 1950s or 60s-era multifamily building. More seismic retrofit orders will be forthcoming from the city, as well: additional affected buildings will be identified this year for brittle concrete construction, most notably those over three stories and/or containing 16 or more units.

If you or your clients might need appraisal services related to the City of Los Angeles' soft-story ordinance, or any other kind of earthquake retrofitting, please email us today at or call (626) 486-9327.




Urban residential and mixed-use development still a great investment in Southern California

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Office and retail down; housing (as always) up.

A recent analysis of the Southern California commercial real estate market reveals several key truths for investors. While retail and office space appear to be overabundant in most sectors, and while industrial and special use properties are holding steady or declining slightly, urban residential and mixed-use development is in high demand.

Despite a variety of challenges in the sector (e.g. financing, parking, neighborhood opposition, and affordability chief among them), there is no question that the need for urban housing is dire. A recent study by the McKinsey Global Institute ranked California 49th in housing units per capita, and pointed out the huge capacity for growth, especially around transit hubs:

As the writers at UrbanLand pointed out, while the demand for urban housing may not be entirely a new phenomenon, there has been a major change in scale in recent years:

One challenge for developing housing in California's major cities is the lack of large land parcels for development. Developers typically must pay a large premium for parcels of one acre or more or hope to assemble such parcels by purchasing multiple lots, which is difficult. It is easier and more cost-effective to acquire smaller lots or two adjacent lots to create projects of about a quarter acre or less. These smaller projects, which often consist of ten to twenty units, will play an important role in addressing California's housing shortage.

This changing landscape will present many opportunities for savvy investors who can navigate the challenges surrounding the urban housing market, and is a trend that seems destined to continue - and intensify - over the coming years.



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Valbridge Property Advisors, with local offices in Los Angeles and the Inland Empire, is now officially the largest independent commercial property appraisal firm in the nation. Calvin Cummings, MAI, Senior Managing Director at Valbridge, attributes this accomplishment – in six, short years – to Valbridge’s excellent leadership and high-level expertise of its appraisers, each of whom brings a unique specialty to its clients.

“At Valbridge Property Advisors, we are often called upon to appraise office, industrial, retail, and multi-family properties in Southern California, as well as land parcels,” says Cummings. “But we also are known for our expertise in appraising specialized property types such as: car washes, marinas, student & senior housing, residential subdivisions, gas stations & convenience stores, hotels & motels, agricultural properties, and RV and mobile home parks. In addition, our Los Angeles and Inland Empire offices have at our disposal, the “brain trust” of 200 MAIs and 500 property advisors at Valbridge’s 68 offices across the nation, should we need to call upon their expertise.

In addition, Valbridge’s use of high-tech appraisal software provides faster, more accurate appraisals and data analysis (usually in 7 – 14 days), often at a lower cost. Says Cummings, “Our software helps us generate appraisals for portfolio assignments very efficiently and cost effectively. With the quality of information presented in our reports, owners and investors are able to make critical decisions relating to ground lease and net leased properties, right of way/eminent domain, conservation easement, portfolio valuation, and market & feasibility analyses, among other things.”

Recent Valbridge assignments have included the Claremont School of Theology, San Manuel Inland Empire’s 66ers baseball stadium in San Bernardino, and the historic Serra Retreat Center in Malibu, which appraiser Scott Shepherd describes as a highlight of his career:

“Appraising the historic Serra Retreat Center in Malibu was one of the most interesting assignments I have completed for Valbridge. Located high on a hilltop with an expansive ocean view, the 26-acre site and its 60,000 square feet of improvements, originally constructed in the 1920’s, presented unique challenges with regard to land valuation and zoning considerations, sales and income comparable selection, and development of physical and functional depreciation factors.  VPA’s extensive networking and data sources allowed me to complete this report for a major financial institution ahead of schedule which exceeded their expectations. It ranks high on my “Top-Ten List” of properties valued over my 29-year career!”

Valbridge’s Los Angeles and Inland Empire offices are client-focused with appraisals arranged around clients’ scheduling needs and performed by the staff of two, fulltime MAIs and six fulltime appraisers. In celebrating its sixth anniversary this month, Valbridge Property Advisors looks to continue to grow its business by maintaining the highest standards in property appraisal services in the nation.

Valbridge Property Advisors' Robert Saia, MAI, SRA Writes First Book of Its Kind on Appraising Manufactured Home Communities

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LOS ANGELES, June 01, 2017 (GLOBE NEWSWIRE) -- Robert S. Saia, MAI, a Director at Valbridge Property Advisors, today announced the launch of “Appraising Manufactured Mobile Home Communities and Recreational Vehicle Parks,” the first book of its kind to constructively analyze this subject matter.

A photo accompanying this announcement is available at

Rob is a Senior Appraiser/Director at Valbridge Property Advisors – Los Angeles/Inland Empire, part of the largest independent national appraisal company in the U.S. with 68 offices and 200 MAI-designated appraisers nationwide. Valbridge Property Advisors provides comprehensive commercial real estate valuation and advisory services for corporations, institutions, and private and public clients.

Published by the Appraisal Institute®, this well-researched book defines the complex legal, physical and economic challenges facing owners of mobile home communities and RV parks. It also provides appraisers with a broad overview of this fast-growing segment of real estate which requires a particular level of expertise to understand.

“Nearly 8% of Americans live in manufactured home communities (mobile home and RV parks),” says Rob, “which amounts to 38,000+ mobile home parks and 9,000 to 10,000 RV parks. Once thought of as low-quality housing, this real estate segment is now being built with many upgrades including nice landscaping, sidewalks, pools, saunas, tennis courts, recreational facilities, security features and other amenities that make it comparable to a good-quality, site-built subdivision.”

Mr. Saia notes that manufactured homes make up a substantial part of America’s housing and come with a unique set of social, legal and environmental aspects that appraisers need to know about because they differ significantly from typical site-built housing in the U.S. Manufactured homes’ popularity is due, in part, to the enormous cost savings they provide. Saia says it costs approximately $93 per square foot for a site-built home while a typical manufactured home runs about $44 per square foot.

Additionally, RV parks are now offering upgrades, never before seen, as in Disney’s destination park which offers live entertainment, swimming pools, golf courses, marinas with boating and fishing, high-quality restrooms and showers, and the availability of the requisite dump stations. In this book, Mr. Saia explains that while mobile home communities and RV parks are high-risk endeavors, they also typically offer higher rates of return over other ownership holdings when properly managed. However, operators and appraisers need to be aware of any local ordinances that govern this type of real estate, which can differ state to state and county to county.

“RV parks in particular require a high degree of business acumen,” he says. “You want your appraiser to be a specialist in this area because of all the nuances of manufactured homes. It’s important to have an appraiser who really understands these properties when they are doing an appraisal because it’s a business entwined with real estate.”

According to Jim Amorin, MAI, SRA, and 2017 President of the Appraisal Institute, “Saia’s book, Appraising Manufactured (Mobile) Home Communities and Recreational Vehicle Parks, provides appraisers with a broad overview of the mobile home and RV industries and the methods used in valuing mobile home and RV communities. Because this book provides insight into the methodology applied in analyzing these properties, it can also be useful to investors, regulators, owners, and buyers and sellers of mobile home and RV parks.”

Robert S. Saia, MAI, SRA has been a real estate appraiser since 1981. His previous book, “A Guide to Appraising Recreational Vehicle Parks,” was published by the Appraisal Institute in 1998. He is currently a Director with Valbridge Property Advisors – Los Angeles/Inland Empire in the Pasadena office.

Valbridge Property Advisors’ Southern California real estate appraisal and consulting services cover a wide variety of commercial and geographic areas, including: Los Angeles County, Orange County, Riverside & San Bernardino Counties (Inland Empire), among others.

For a quote on an appraisal for manufactured home parks, RV parks, industrial developments, retail shopping centers, office or multifamily properties, or any other commercial properties, please email us at or call us at 626-486-9327.

For more information, please contact:

Valbridge Property Advisors
Robert Saia, MAI, SRA at: (626) 219-8116