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An MAI Appraiser Has Thoughts on the Challenges of Industrial Real Estate Condominium Appraisals

Updated: Aug 7, 2023

Introduction

Industrial Mezzanine over Office and equipment
Industrial Real Estate from an MAI perspective

Appraising industrial condominiums may seem like a straightforward task, but it comes with its own set of complexities, particularly when determining the correct gross leasable area (GLA). In this blog, we will delve into the challenges faced by commercial appraisers in this specific niche, and explore practical strategies to overcome them. Whether you are a seasoned appraiser or a novice in the field, understanding these intricacies will help you produce more accurate and reliable appraisals.


(1) Overcoming GLA Measurement Errors:

One of the primary challenges appraisers encounter is inaccuracies in GLA measurements. Some developers include overhangs or other unusable areas to market larger bays, leading to persistent measurement errors. To address this, it is crucial to scrutinize condominium documents and county assessor records meticulously. Additionally, we'll explore how mezzanines, often designated as "storage" despite being used as office space, can create discrepancies that require careful consideration.


(2) The Enigma of Mezzanine Measurements:

Mezzanines in industrial condominiums present a unique challenge due to inconsistent descriptions and a lack of standardized measurement methods. We'll discuss the limitations of relying on BOMA standards and the necessity of discerning the "market standard" when determining the GLA for comparable properties. Strategies for handling mezzanines will be explored, including identifying whether they are free-standing metal rack platforms or finished office spaces, and their impact on overall GLA calculations.


(3) Comparative Analysis- The MAI Appraiser Key to Accuracy:

When appraising industrial condominiums, a robust comparative analysis is essential. We'll delve into how comparable data from the same development can be justified as long as consistency is maintained. Conversely, analyzing data from different developments or properties with significant variations can be time-consuming, requiring a careful approach to ensure accurate measurements.


(4) Unfinished Condominium Mezzanines and Their Impact:

Unfinished mezzanines, often considered as low-clear space, can reduce the overall clear height below unless they are over offices. We'll explore the significance of unfinished storage mezzanines for businesses and their implications for GLA calculations. Moreover, we'll discuss instances where unfinished mezzanines should be excluded from GLA to provide a more accurate representation of the property's value.


(5) Navigating the Murky Waters of Mezzanine Office Space:

Appraisers often encounter challenges in assessing mezzanine space finished as offices, as they come in various forms and quality levels. We'll delve into the subjectivity of verification and how it can impact GLA calculations. Additionally, we'll discuss the desirability of second-floor office space compared to ground floor space and the importance of accounting for functional obsolescence in size adjustments.


An MAI Apprauser on Industrial Condominium Appraisal Conclusion:

Appraising industrial condominiums requires meticulous attention to detail and a keen understanding of the unique challenges posed by GLA measurements and mezzanine space. By employing consistent methodologies, conducting thorough comparative analyses, and carefully verifying property data, appraisers can produce more reliable and accurate valuations. Remember, small discrepancies in GLA and office percentages can significantly influence appraisal outcomes, making it vital to approach each assignment with utmost diligence.

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