Zoning, title, deferred maintenance and NOI are among the many factors that influence real estate values 

Other than reviewing comparables and replacement costs, there are a number of major factors to consider when valuing a piece of non-residential real estate.

Whether it be raw development land, a shopping center, an industrial building or an office building, there are any number of factors that play into the complexity of valuing such properties.

Here are eight key considerations that a property owner and/or the commercial real estate agent should not overlook in the process.

1. Zoning – Some uses in the market are heavily restricted by certain zoning regulations.  In my community for instance there is a very limited supply of General Industrial (GI) zoned properties, which adds an extra boost to the demand factor.  On the other side of the coin there is a large supply of Limited Industrial (LI) Flex space, which far exceeds the current demand.
2. Title Issues — Consider such things as easements, covenants and deed restrictions that may encumber uses for the property beyond zoning.  Surprisingly this can happen more than one may think.
3. Physical Condition – Has the property been maintained well? Or have essential issues been deferred?  Buyers in today’s market are more cost conscience than ever – despite the fact that the contractor market is extremely competitive.  Bottom line is that the numbers to improve or develop a property have got to make sense.
4. Net Operating Income – Buyers are going to take a hard look at the leases and other revenue sources on an income property, but also related expenses.  Are the rates at market or is there room for improvement?  Are the leases full-service or triple net?  What expenses are controllable … utility and common areas costs that are not passed through to the tenants can be a real problem.
5. Tenant Mix – If this is an investment property, value will be seriously impacted by the stability of the tenants.  Vacancies in some sectors (as in the case of LI Flex) can really pull values down.  For the investor, it’s all about risk.
6. Development Costs – While contractor costs have become extremely competitive, it’s no longer just about getting a plat approved and then building roads and improvements.  Today’s regulatory environment has become more complex adding new requirements and increasing processing time. Consider issues like contaminated soils, the potential of archeological studies, forestation requirements and preservation of historical structures.
7. Financing – Yes, lenders are still extremely cautious about what kind of properties they will finance.  Consider that a low volume of real estate closings in a market can create challenges for appraisers to justify strong sales prices.  This may put the “fortunate” seller in the awkward situation of  having to renegotiate the price so as to make the loan and equity package work.
8. Resale value – While many purchasers are hung up about determining current market value, savvy investors and developers are also looking ahead to exit strategies.  In an unstable market sometimes that is anybody’s guess.

With a market that is more price sensitive than ever it is incumbent on the owner and the commercial real estate broker use all the above information to construct a profile of the ideal purchaser for the property.

Throw all this into the mix with comparable sales and active inventory to price the property accordingly.

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Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He is an appointed member of the Frederick County Charter Board.  He also writes for TheTentacle.com.