Detective Story: Valbridge Study Reveals Highest-Return Option and More
November 18, 2015
Sherlock Holmes could very well have become an income-property appraiser.
Valbridge professionals act as detectives with every market and feasibility study they perform. Most often the mystery is to deduce the highest and best use of a property; in other words, the use that would produce the highest net return on investment.
Valbridge's Daniel Kann, MAI, a multifamily valuation expert, undertook such an exercise when he performed a market and feasibility study for the owner of a 14-acre suburban site. His analysis began by determining what was physically possible for the site, what uses were permitted under zoning laws and deed restrictions, and what was economically feasible.
Then his examination got really interesting.
To estimate demand for different potential product types, he analyzed employment and income data, other demographic information, and existing and future inventory and supply in various stages of production. He studied market occupancy, projected absorption, and estimated sales prices and asking rents for various multifamily options.
Daniel and his team evaluated 31 comparable properties in addition to the overall market, and analyzed the option of holding the site for future development versus developing it immediately.
The market and feasibility study concluded that the area in which the site is located could not support additional rental housing. In fact, depending on the timing of additional phases at other developments, the market could become even more overbuilt — with increased vacancy, declining asking rents and additional concessions necessary to capture tenants.
Rather, the analysis revealed, a for-sale residential use would be maximally profitable. The target market: professionals and empty nesters without children who have a higher median household income. The highest-return on investment type: a patio/villa home project. Daniel’s study illuminated even more, including the optimal mix of floor plans and unit sizes.
Sherlock Holmes couldn’t have produced a more revealing result.