slide1
Download
Skip this Video
Download Presentation
Robert E. Bainbridge AUTHOR, INSTRUCTOR, APPRAISER C – S T O R E V A L U A T I O N S

Loading in 2 Seconds...

play fullscreen
1 / 46

Robert E. Bainbridge AUTHOR, INSTRUCTOR, APPRAISER C – S T O R E V A L U A T I O N S - PowerPoint PPT Presentation


  • 105 Views
  • Uploaded on

Convenience Stores & TRPs in Condemnation: Special Valuation Issues in the Application of the Income Approach. Robert E. Bainbridge AUTHOR, INSTRUCTOR, APPRAISER C – S T O R E V A L U A T I O N S www.cstorevalue.com. 1. Convenience Stores + TRPs 2. 4 Critical Valuation Factors

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about ' Robert E. Bainbridge AUTHOR, INSTRUCTOR, APPRAISER C – S T O R E V A L U A T I O N S' - tarala


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
slide1

Convenience Stores & TRPs in Condemnation:Special Valuation Issues in the Application of the Income Approach

Robert E. Bainbridge

AUTHOR, INSTRUCTOR, APPRAISER

C – S T O R E V A L U A T I O N S

www.cstorevalue.com

next 40 minutes

1. Convenience Stores + TRPs

  • 2. 4 Critical Valuation Factors
  • 3. Income Approach:
  • Comparable Rentals v. Earnings

Next 40 Minutes

slide3

Not Your Usual Appraisal

TRPs = Trade Related Property

Special-Built Properties

Single Economic Purpose R.E. built to generate earnings

Cannot be Easily Converted

Value Extremely Sensitive to Access

Value Extremely Sensitive to Visibility

definition of trp

A trade related property is any type of real propertydesigned for a specific type of business where the property value reflects the trading potential [earnings capacity] for that business. Examples include hotels, fuel stations, restaurants, casinos, cinemas and theatres.

  • The essential characteristic of this type of property is that it is designed, or adapted, for a specific use and the resulting lack of flexibility means that the value of the property interest is normally intrinsically linked to the returns that an owner can generate from that use. The value therefore reflects the trading potential of the property. It can be contrasted with generic property that can be occupied by a wide range of different business types, such as standard office, industrial or retail property.

Definition of TRP

International Valuation Standards, Standard 232

slide6

Not Your Usual Appraisal

Where does NOI to Real Estate come from?

slide8

Four Critical Factors

C-Store & TRP Appraisals:

1. Supply & Demand

2. Customer Demographics

3. Traffic Count

4. Hypermarket Competition

slide9

Statistical Study Example

Just 3 Factors:

(a) Supply & Demand

  • (b) Customer Demographics
  • (c) Hypermarket
slide10

Statistical Study Example

Just 3 Factors:

Norm: $1,000,000

Low:$700,000

High: $2,000,000

slide11

Statistical Study Example

Just 3 Factors:

Norm: $1,000,000

Low:-30%

High: +35%

slide12

Statistical Study Example

Just 3 Factors:

TOTAL VALUE

VARIATION:

65% !

slide13

Four Critical Factors

  • 1. Supply & Demand

Few Competitors

Many Competitors

slide14

Four Critical Factors

  • 2. Customer Demographics

Shopping Potential Index

slide15

Four Critical Factors

  • 3. Traffic Volume
slide16

Four Critical Factors

  • 4. Hypermarket Competition

Selling gasoline 6 CPG below street price.

slide17

Statistical Study Example

Just 3 Factors:

TOTAL VALUE

VARIATION:

65% !

the income valuation approach comparable rentals v earnings allocation

Current Legal Arguments

The Income Valuation Approach:

Comparable Rentals

v.

Earnings Allocation

2013 kansas case presta oil inc v kdot

Current Legal Arguments

2013 Kansas Case

Presta Oil, Inc.

v.

KDOT

An Appraiser’s View

slide21

The Income Approach and the

Kansas Decision

Income Approach

RENTAL COMPARABLE ANALYSIS

EARNINGS

ALLOCATION

slide22

The Income Approach and the

Kansas Decision

Income Approach

  • BEST FOR:
  • Apartments
  • Mini-Storages
  • Multi-tenant Retail
  • Offices

RENTAL COMPARABLE ANALYSIS

slide23

The Income Approach and the

Kansas Decision

Income Approach

  • BEST FOR:
  • (ALL TRPs)
  • Convenience Stores
  • Gas Stations
  • Car Washes
  • Fast-Food Restaurants
  • Motels & Hotels

EARNINGS

ALLOCATION

slide24

The Income Approach and the

Kansas Decision

Problems with Rental Comparable Analysis for TRPs

Good rental comparables are difficult to find.

The location adjustment is difficult and should reflect all four Critical Factors.

slide25

The Income Approach and the

Kansas Decision

Problems with Rental Comparable Analysis for TRPs

  • Supply & Demand
  • Customer Demographics
  • Traffic Volume
  • Hypermarket Competition
  • (Cross-Channel Competition)
slide26

The Income Approach and the

Kansas Decision

Problems with Rental Comparable Analysis for TRPs

  • Supply & Demand
  • Customer Demographics
  • Traffic Volume
  • Hypermarket Competition
  • (Cross-Channel Competition)

TOTAL VALUE

VARIATION:

65% !

slide27

The Income Approach and the

Kansas Decision

Problems with Rental Comparable Analysis for TRPs

slide28

The Income Approach and the

Kansas Decision

Earnings Allocation

“The methodology of the earnings capitalization parallels the way industry participants view real estate. The real estate, like all other assets, is considered in its context of its contribution to earnings.”

Robert E. Bainbridge, Convenience Stores and Retail Fuel Properties: Essential Appraisal Issues, Second Edition 2012, (Appraisal Institute, 2012):

slide29

The Income Approach and the

Kansas Decision

Earnings Allocation

“Because it is a component part of these assets, the value of the real estate is dependent on earnings capacity. This is the fundamental premise of value for a convenience store.”

Robert E. Bainbridge, Convenience Stores and Retail Fuel Properties: Essential Appraisal Issues, Second Edition 2012, (Appraisal Institute, 2012):

slide30

The Income Approach and the

Kansas Decision

Earnings Allocation

“The income approachis applied to a trade related propertyby estimating the amount that a reasonably efficient operator could afford to pay as rent for the property after deducting other operating expenses and a reasonable profit margin for the operator from the gross income that can be generated from the property…”

International Valuation Standards Council (IVSC), Proposed NewInternational Valuation Standards (IVS), “Standard 232” (2010).

slide31

The Income Approach and the

Kansas Decision

  • 7 STEPS IN EBIDITA ALLOCATION PROCEDURE
    • 1. Gross Sales
    • 2. Less: Cost of Goods Sold
    • 3. Equals: Gross Profit
    • 4. Less: Operating Expenses
    • 5. Equals: Adjusted EBITDA
    • 6. Allocate Earnings to:
            • REAL ESTATE
            • PERSONAL PROPERTY
            • INTANGIBLE ASSETS
    • 7. Capitalize Allocated Earnings to each
    • Asset Class:
            • REAL ESTATE VALUE
            • PERSONAL PROPERTY
            • INTANGIBLE ASSETS VALUE
slide33

The Income Approach and the

Kansas Decision

Earnings Allocation

  • ADVANTAGES:
  • Most nearly reflects the actions of the market.
  • Allows the separate valuation of all three classes of assets.
  • Abundant published industry bench-marking data.
  • Less prone to error (i.e. under-value good locations or over-value poor locations).
slide34

The Income Approach and the

Kansas Decision

Presta Case

Kansas Decision

Earnings Allocation Analysis

REJECTED

slide35

The Income Approach and the

Kansas Decision

Presta Case

Kansas Decision

“An Order in Limine is hereby entered precluding introduction of evidence …of any valuations based on a capitalization of EBITDA …”

slide36

The Income Approach and the

Kansas Decision

Presta Case

Kansas Decision

An Appraiser’s View

slide37

The Income Approach and the

Kansas Decision

Presta Case

Kansas Decision

slide38

The Income Approach and the

Kansas Decision

Presta Case

Kansas Decision

Mistake 1

EBIDTA is business Profit

slide39

The Income Approach and the

Kansas Decision

Presta Case

Kansas Decision

Mistake 1

EBIDTA is business Profit

  • Income
  • EBIDTA
  • Business income
  • Profits
  • Business Profit
slide40

The Income Approach and the

Kansas Decision

Presta Case

Kansas Decision

Mistake 2

“Earnings are inherently a measure of the business acumen of the… business owner.”

slide41

The Income Approach and the

Kansas Decision

Presta Case

Kansas Decision

Mistake 3

“…location alone… does not create revenue.”

slide42

Advice for Attorneys

1. Use a knowledgeable appraiser when earnings-based procedures are required (i.e. if the property is a TRP).

slide43

Advice for Attorneys

2. When using an earning-based procedure, describe the allocation to real estate as “economic rent”.

slide44

Advice for Attorneys

3. Augment an EBITDA allocation procedure with other “earnings-based” techniques.

slide45

Advice for Attorneys

4. In any challenge, make sure you know what the appraiser did in the cases cited.

slide46

www.cstorevalue.com

Robert E. Bainbridge, MAI

[email protected]

ad