case study appraisal of a strata industrial property

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CASE STUDY

Appraisal of a Strata Industrial Property

The following case study introduces the appraisal of strata industrial developments. This case study pertains to a

strata development of a small, single strip industrial building with office space. The analysis is typical, in that

the appraiser has analyzed a preliminary project design, for the purpose of evaluating overall feasibility to

facilitate project financing.

The Site

Location

The subject property is located in the Townsville Industrial area, in New Town, in a sub area known as the Pitt

Road Industrial area. The site lies on a mid block setting, on the north side of Spoke Avenue, approximately one

block south of Pitt Road.

Shape and Size

The subject site is approximately rectangular, with frontage on Spoke Avenue of approximately 117 feet (35.66

m), and depth of 355 feet (108.2 m). Reported site area is 0.95 acres (0.385 hectares), more or less.

Topography

Terrain in the general area is predominantly level, subject to a modest decline towards the south. The subject site

declines by 3 feet (0.91 m) from north to south, representing less than a one percentage grade variance,

according to mapping at the New Town Hall.

Soil Conditions

We have not been provided with, nor have we commissioned a soil survey for the subject site. For the objective

of this report, we assume that the bearing capacity of the land is adequate to permit development, without undue

and costly site preparation.

While not qualified at such, we did not observe any obvious evidence of contaminants or hazardous materials at

the property, and have no knowledge of historical activities that would deposit these. A Phase I environmental

site assessment prepared by the New Town firm of Environmental Laboratory Inc., and dated April 23, 2010,

concluded that “it does not appear that there has been any past or present industrial activity that is of

environmental significance on the subject property over the known historical period ... this Phase I

environmental assessment does not reveal sufficient significant evidence to suggest potential contamination at the

subject property”.

Our value estimate assumes without verification that there is no material on, in or near the property that would

cause a loss in value.

Access

Roadway access to the site exists from Spoke Avenue only. An easement over the lot to the north is provided for

in the current purchase agreement. This easement will provide access to Pitt Road. Community and regional road

access is excellent, since Pitt Road, one block to the north, becomes South Bend Way as it passes through New

Town, and the Trans Canada Highway, which lies approximately two blocks to the north, may be reached via

South Bend Way, Townsville Road, and Simons Road.

Case Study: Appraisal of a Strata Industrial Property

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Visual Exposure

Traffic on Spoke Avenue is essentially local oriented and is insufficient to provide a material commercial benefit

to the property. At elevation, attractive views will exist of the surrounding countryside. However, height

limitations inherent in land use controls limit the practical benefits of this aspect.

Street Improvements

Spoke Avenue has been redeveloped in recent years to reflect contemporary urban engineering standards. The

road contains two lanes paved for traffic, flanked by two paved parking lanes. Concrete curbs, gutters and

sidewalks and streets are present. Upgrading of Spoke Avenue occurs with subdivision and development

projects. The property immediately east of the subject has not as yet dedicated the required land [33 feet (10.06

m) of depth] to complete the road right-of-way, nor installed the off-site improvements.

Utilities

Utility services typical of an urban community are available in the area, and include municipal water and

domestic sewer, storm water drainage, electricity, natural gas, telephone, and cable television.

Surrounding Developments

The Townsville Industrial area in the immediate vicinity of the subject is largely built up, and the subject

represents one of the remaining few undeveloped sites in the area. Situated north of the property is another

undeveloped site, which was formed by subdivision of the larger lot from which the subject arose. This lot is

presently available on the market. A single tenant industrial structure lies to the east of the property, while

multiple tenant industrial buildings lie to the north, facing Pitt Road, and on either side of the vacant sister

parcel.

A fenced and treed site lying west of the property has been vacant for some time. Lands further to the west are

in use as a storage yard for a lumber yard property that fronts onto Pitt Road.

The remainder of the block containing the subject is improved with relatively modern, low-rise industrial

properties. There are a number of multi-tenant industrial warehouse/business park developments in the area that

are of recent vintage. Land uses along the south side of Spoke Avenue tend to be more heavily industrial in

character, although a multiple tenant, multi-building industrial development exists at the south west corner of

True Street. In spite of the general lack of undeveloped sites in the area, industrial activity in the Townsville

Industrial area containing the subject is likely to continue, as sites utilized for other purposes, or under-utilized

(by uses such as a scrap yard or equipment storage yard) move to higher and more efficient uses.

The Proposed Improvements Design and Plan

The proposed improvements comprise a single industrial building, situated near the west property line. The

design depicts nine bays, although tenants could combine two or more bays to form a larger unit.

The proposed building will lie approximately four feet (1.22 m) from the west property line, 14 feet (4.27 m)

from the south property line and 30 feet (9.14 m) from the north property line. Thirty-six parking stalls are

arrayed along the east side of the property, with an additional five along the north side of the building. Situated

between the parking on the east side and the building along the west side is an internal transportation road. The

purchase agreement for the subject land provides for an easement from the subject site across the site to the north

to Pitt Road.


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Building statistics follow:

Floor Area:

Ground Floor Warehouse 17,781 square feet

Mezzanines 5,000 square feet proposed

Total 22,781 square feet

Site Coverage Ratio: 43%

Floor Space Ratio: 55%

Parking Stalls: 41; 1.8/1,000 square feet of building

Loading Bays: 9: one per bay

Construction is of steel frame, with concrete tilt-up panel exterior walls. The roof will be flat. Height of the

building will be 26 feet (7.92 m), from the floor elevation to the top of the panel, with interior clear height

estimated at approximately 21 feet (6.4 m).

Exterior finishing reflects a contemporary design. Typical interior bays are 32 feet (9.75 m) wide, with

approximately half of the elevation dedicated to the front loading door and the remainder dedicated to a two

storey office/mezzanine area featuring ample, 8 foot (2.44 m) tall glazed windows and commercial storefronts.

The project concept entails a full width mezzanine development along the units on the north and south sides.

These areas have independent entries, via staircases. The remaining bays provide for mezzanine buildout, but

this is not shown in the construction drawings. Overall main unit sizes are as follows:

Rentable Area

Unit on Grade (sq.ft.)

1 2,376

2 1,840

3 1,840

4 1,840

5 1,840

6 1,840

7 1,840

8 1,840

9 2,379

17,635

Actual buildout of the mezzanine will be determined by tenant requirements: the plans depict full buildout of the

mezzanine on the north and south units. The developer presently anticipates building a total of 5,000 square feet

(464.5 m2) of finished mezzanine space, bringing the gross building area to 22,781 square feet (2,116.4 m2). The

practical limit of mezzanine space will be determined by land use controls and parking requirements: in some

instances, economics of development change as mezzanine buildout increases, since small mezzanines may not

require the full sprinkler and other fire proofing treatment necessary for larger finished mezzanine areas.

The developer proposes to construct the project with rental in mind, and would install a common hot water

heating system throughout, with nine zones. The finished floor areas in the mezzanines will additionally feature

roof mounted HVAC units. Full office finishes are anticipated for the mezzanines as well as for the at grade

space immediately beneath.


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Preliminary building specifications follows:

Specifications:

Foundations: Reinforced concrete perimeter spread footings, with columnar footings and engineered

foundations as required.

Structural Framing: Steel frame and open web steel mezzanine floor and ceiling joists.

Exterior Walls: Concrete tilt-up panels.

Interior Walls: Wood or steel stud framing for non-bearing partitions; demising walls of concrete

block or fire proof framing. Taped and drywall gypsum board, painted in finished

areas. Unfinished interior walls in shop.

Ceiling Finish: Drop ceiling of t-bar, with inset acoustic tiles, fluorescent lighting, and HVAC grills

(finished areas only).

Flooring: A combination of ceramic tile, vinyl flooring, and carpeting per tenant specifications.

Unfinished in shop areas.

Roofing: Flat roof, with waterproof membrane roofing, three inch insulation, four and a half

inch metal decking; drainage.

Plumbing: Building service connection, adequate plumbing throughout, with two-piece

washrooms on the main level and for each finished mezzanine. Exterior hose bibs and

landscape irrigation.

Electrical: Individual service connection. Adequate wiring throughout, with lighting by

fluorescent, incandescent and metal vapour lighting, per tenant requirements.

Security: Fire sprinklered construction.

Heating and Cooling: Gas service connection, central high efficiency boiler, nine zones. Office areas provide

roof mounted HVAC units, with ducting and separate controls.

Doors and Windows: Prefinished metal sash thermopane windows throughout, with matching, prefinished

commercial storefront. Interior doors and windows per tenant requirements and code.

12 foot × 12 foot (3.66 m × 3.66 m) insulated metal sectional overhead doors.

Yard Improvements: The bulk of the site will be paved, with soft landscaping featured along the south,

Spoke Avenue elevation. Soft landscaping also in north west corner. Concrete curb

and bumpers, with exposed aggregate concrete walks.

Age and Condition: Building will be new on completion, with materials, workmanship, and design

presumed to meet or exceed the market standard.


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Highest and Best Use

The highest and best use of real property as defined in The Appraisal of Real Estate, 3rd Canadian Edition,

2010, is:

The reasonably probable and legal use of vacant land or an improved property that is legally

permissible, physically possible, appropriately supported, financially feasible, and that results

in the highest value.

The vacant site is approximately 0.95 acres (0.38 hectares) in size, with dimensions of 117 feet (35.66 m) by

355 feet (108.2 m), more or less. Configuration of the rectangular site is sufficient to accommodate a variety of

development scenarios. Access and egress involving the site primarily entails Spoke Avenue, with an easement

to be provided across the property to the north, according to the land purchase agreement. Soil conditions are

assumed to be adequate for development. We are unaware of any adverse environmental constraints. Full utility

servicing is available in the area. In physical terms, the property is suited for a variety of uses that can be

accommodated by the particular site dimensions.

The property is zoned light industrial and bears an industrial use designation. It is unlikely that material changes

to the land use controls could be achieved, given the recent rezoning to the property and the particular

requirements of the Official Community Plan. This appraisal assumes that there are no titular limitations that

materially affect utility.

The property lies in an area zoned for industrial purposes, and there are a number of light industrial sites in the

area. Recent development in the area involves a variety of single level plus mezzanine steel frame, concrete tilt-

up structures, many contemplating multi-tenant use. The multi-tenant use aspect apparently reflects a limited

demand for large tenancy space.

Rental rates in the Townsville Industrial area are sufficient to retire the costs of construction and provide a net

return to the land. As is demonstrated by the recent development pattern, industrial development is feasible in

this market, given appropriate designs, prudent construction management and a proper marketing and lease-up

program.

On the basis of the foregoing, highest and best use of the site is concluded to be for industrial purposes, pursuant

to the applicable I-1 zoning schedule, with development as market conditions permit.

The proposed development entails a single, warehouse type building with a footprint of approximately 17,781

square feet (1,651.9 m2). The area proposed for mezzanine buildout will vary according to tenant requirements.

The construction drawings show 2,352 square feet (218.5 m2) of mezzanine buildout, while the developer

contemplates a higher level of 5,000 square feet (464.5 m2), with the ultimate buildout determined by the market

(and of course subject to City of New Town requirements).

The proposed building is oriented along the extreme west side of the site, thus providing the maximum area

along the east side for transportation, loading, and parking. The proposed development provides 41 parking

stalls, approximately 1.8 stalls per 1,000 square feet of building. This ratio is in excess of that required by New

Town zoning bylaw (1 stall per 1,000 square feet) and will provide the typical unit with 4.6 stalls. This level of

parking is attractive, and will facilitate demand for the additional office buildout.

The proposed development appears to lie near the maximum practical level achievable by the site. The

warehouse design is of a front loading characteristic that, while less desirable than a rear loading situation for

many tenants, reflects the local market pattern. Bays are relatively wide, at 32 feet (9.75 m), with a depth of

approximately 60 feet (18.29 m). This configuration permits a useful showroom/office area on the main floor

and facilitates an expansive second floor mezzanine, while permitting clear height shop area throughout the depth

of the various units.


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On the basis of the foregoing, the proposed design appears to reasonably reflect highest and best use of the site.

The proponent contemplates developing the project on a rental basis, with initial strata subdivision to facilitate

long-term asset management. Rental projects are finished somewhat differently for sale strata units, in that

materials are incorporated that reduce life cycle maintenance costs in a rental property. For an ownership

property, appearance and finish may be more important. The proposed development contains a relatively

efficient hot water heating system, with individual roof mounted HVAC units for the finished areas.

Valuation

The proposed development contemplates a rental situation, with potential strata title subdivision as market

conditions permit and the owner wishes. The appraisal for development financing purposes of a property of this

nature has four valuation aspects:

1. Value of the underlying land is required to confirm initial equity.

2. An estimate of reproduction costs for the development is in order to help evaluate project feasibility.

This analysis is completed under the heading “Cost Approach”.

3. As a rental project, the property will appeal to investors primarily due to its ability to generate and

sustain rental income. The income potential of the property, as a single holding is evaluated under the

heading “Income Approach”.

4. Strata title properties typically trade on the basis of comparison with other individual strata title units.

This aspect of the property is analyzed using the direct comparison approach. As a check on the income

analysis, a direct comparison analysis of the property as a rental investment is completed.

The first step in our analysis is valuation of the underlying land.

Land Value

An appraiser may value land that is vacant and available for development in various ways:

direct comparison

allocation

extraction

income capitalization

1. direct capitalization techniques

land residual

ground rent capitalization

2. yield capitalization techniques

discounted cash flow analysis (subdivision development analysis)

Of these, direct comparison is the most compelling, relating current market activity to the site under appraisal.

Allocation, employed when comparable sales evidence is scarce, relies upon a typical land-value-to-property-

value ratio. Extraction, a variety of abstractions, deducts the depreciated value of the buildings from a sale price

to indicate vacant land value. The direct capitalization techniques entail the capitalization of income from a single

year of property operation. Land residual relies on an allocation of net revenue from an improved property into

its component parts of first, the building, and secondly by residual, the land. Ground rent capitalization converts

net lease payments into capital value. The yield capitalization technique explicitly recognizes time value of

money considerations. Subdivision development applies to undeveloped acreage where a potential urban

development represents the highest and best use of the land. The analyst considers cash flows over the

construction and the marketing stages.


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Where sufficient data is available, the method of choice to ascertain the market value of land as if vacant and

available for development is direct comparison, a comparative analysis of transactions involving more or less

similar properties and market conditions. We surveyed the New Town and Motts area for evidence of recent

sales, listings, or offers to purchase on properties that provide useful benchmarks of value for the subject

property. Data located includes the following:

1. White Street, New Town

Lot 3, Section 18, Township 16, Plan LMP16962

Lot Size - 98 164 = 16,072 square feet

Zoned - M-5

Sold - March 2009 (agreement) for $130,000 or $8.09 per square foot

Serviced site on west side of street, between Moss and Pitt Road.

2. Spoke Avenue, New Town

Lot B, Section 18, Township 16, Plan 81332

Lot Size - 1.11 acres; 48,352 square feet

Zoned - M-1

Sold - January 2010 (closed) for $262,500 or $5.43 per square foot

Situated between Ace Road and Spade, north side of street, gravel and fenced yard.

3. Industrial Way, New Town



Zoned - M-2

Sold - February 2010 (closed) for $500,000 or $4.35 per square foot

West end of Industrial Way, near the international boundary, level, graded and gravel surface.

4. Avon Avenue, West of Hume Road, New Town

Lots 46 - 48, D.L. 207, Plan 62080


Zoned - M-3

Sold - July 2010 (closed) for $345,000 or $4.89 per square foot

New Town Industrial Park. Fenced and gravelled yard. Property used for storage of forestry

products.

5. 34333/4 Demon Road, New Town

Lot 28, Plan 62376 and Lots C & D, Plan LMP08613, Sec. 3, Tp. 16


Zoned - M-2

Sold - November 2010 (closed) for $1,236,000 or $4.05 per square foot

Three lot assembly, filled and built-up, fenced and with small office (improvements assessed at

$23,000). In use as a transport facility and storage yard; purchased by ABC Trucking Ltd.

6. Progressive Way, New Town



Zoned - M-3

Sold - April 2011 (closed) for $400,000 or $5.25 per square foot

Level site in newly developing industrial park east of Simons Road.


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7. McIntosh Road, one block west of Highway 40, New Town

Part of Lot 37, D.L. 207, Plan 52644


Zoned - M-3

Sold - May 2011 (closed) for $325,000 or $4.26 per square foot

Good access, fenced, gravelled yard in use as storage yard, level.

8. 31060 Pitt Road, New Town

(a) West 117.5 feet of Lot 3, NE Section 13, Township 13, Plan 2920

Lot Size - 2.0 acres gross; 1.91 acres net (83,200 square feet)

Zoned - A1, now I-1

Sold - February 2007 (closed) for $350,000 or $4.21 per net square foot

Sold - December 2010 (closed) for $475,000 or $5.71 per net square foot

Level, serviced development site, also with frontage on Spoke Avenue, now subdivided.

(b) Lot 2, Section 13, Township 13, Plan LMP31585


Offer - August 2011 (to close Oct. 2006) for $280,000 or $6.74 per square foot

South half of (a): purchaser intends to construct a nine bay industrial warehouse building.


Lot 3, Section 24, Township 13, Plan 80917

Lot Size - 0.872 acres; 70 frontage 542

Zoning - M-3, designated industrial

Listed since 2009, now at $390,000 or $10.27 per square foot

Offer at $340,000 or $8.95 per square foot, to close September 2011

Narrow site, adjacent to proposed road, offer not closed due to financing.

10. 2030 Panorama Crescent, New Town


Lot Size - 109 200 = 21,800 square feet

Zoned - M-1, general industrial

Available since July 2011 for $174,500 or $8 per square foot

Serviced lot, near freeway exchange.

11. Bend Highway, two blocks west of Simons Road, New Town

Part of Lot 12, Section 23, Township 13, Plan 44494

Lot Size - 4.08 acres (177,725 square feet); 595 feet frontage

Zoned - I-3 (Development Permit area)

Listed - September 2011 for $670,000 or $3.77 per square foot

Serviced industrial site near New Town airport, services near, treed.


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Summary

Index Date Zoning Size - Sq.Ft. Price Price/Sq.Ft.

1 3/09 M-5 16,072 $130,000 $8.09

2 1/10 M-1 48,352 262,500 5.43

3 2/10 M-2 115,000 500,000 4.35

4 7/10 M-3 70,567 345,000 4.89

5 11/10 M-2 304,920 1,236,000 4.05

6 4/11 M-3 76,230 400,000 5.25

7 5/11 M-3 76,230 325,000 4.26

8 a 2/07 A-1 83,200 350,000 4.21

12/10 I-1 475,000 5.71

b (subject) 8/11 I-1 41,382 280,000 6.74

9 List M-3 37,984 390,000 10.27

Offer 340,000 8.95

10 List M-1 21,800 174,500 8.00

11 List I-3 177,725 670,000 3.77

Analysis

We have presented evidence on eleven industrial zoned properties in the New Town area, which includes three

listings for contemporary reference. Expressed in terms of price per square foot, values range from $3.77 to

$10.27, with the extremes represented by current listings. Included within the data is Index No. 8, representing

the subject data described earlier.

Index No. 1 entails a nearby White Street location. This small 16,072 square foot site sold over two years ago

at $8.09 per square foot. This property is considered a useful indicator for the subject; however,

it requires a negative adjustment for the difference in site size.

Index No. 2 entails a Spoke Avenue site east of the subject. This site is approximately one acre in size and

sold in January 2010 at $262,500, approximately $5.43 per square foot. An upwards adjustment

is in order for the subject site due to its somewhat smaller size and the passage of time.

Index No. 3 entails a 2.64 acre site on the west end of Industrial Way, near the international boundary. This is

a generally inferior industrial location. The property sold at $4.35 per square foot, a rate

considered low relative to the subject.

Index No. 4 is an Avon Avenue site in the inferior, New Town Industrial Park near the New Town/Old Town

Highway. The particular property is improved with a fenced and gravel yard and had been used

for the storage of forest products. Again, the rate of $4.89 per square foot shows as inferior to

the subject.

Index No. 5 is a three lot seven acre assembly in an inferior location. The rate of $4.05 per square foot

requires upward adjustment for size and setting.

Index No. 6 is a level site in the newly developed industrial park east of Simons Road near the subject. This

1.75 acre site sold in spring of 2011 at $5.25 per square foot, approximately $229,000 per acre.

Adjustments due to size and location bring this unit rate up.

Index No. 7 is a McIntosh Road location one block west of Highway 40, in the New Town Industrial area.

This site requires adjustments similar to those of Index No. 4, and for similar reasons.


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Index No. 8 is the subject data described earlier, and included here for ease of reference. The current

transaction represents an arms-length arrangement and is subject to conditions that are, for the

most part, characteristic of the market. The transaction includes consideration for the easement

over the adjacent site.

The remaining three properties represent current listings.

Index No. 9 is a relatively small site of some 70 feet of frontage and 542 feet of depth. This will be a difficult

site to fully develop due to its width. The property has been on the market for an extended period

of time, and was most recently available at $10.27 per square foot. There is a current offer at

$8.95 per square foot; however, due to difficulty with financing, the closing has been delayed.

The property has potential commercial exposure. Although physically located near the subject, it

requires several adjustments due to shape and potential.

Index No. 10 is a property on Panorama Crescent that is presently on the market at an asking price of $8 per

square foot. The asking rate for this one half acre site requires an adjustment for time and the

negotiation margin inherent in asking prices.

Index No. 11 entails frontage on the Bend Highway, two blocks west of Simons Road. This 4.08 acre site lies

west of the subject near the New Town Airport. The property has been available on the market

for some time. The owner is Ready Sausage Company. This data is considered to reflect an

inferior situation relative to the subject.

The bulk of data within this analysis is concluded to be inferior to the subject. Indicators considered to reflect the

low end of value include Indices No. 2, No. 3, No. 4, No. 5, No. 6, No. 7, the dated sales involving the subject

of Index No. 8a and No. 11. Indicators concluded to reflect the higher limit include Index No. 1 and the current

listings of Index No. 9 and No. 10. On the basis of the foregoing, and recognizing the contribution of the

easement, value for the subject land is seen to lie in the order of $6.50 to $7.50 per square foot of land. We note

that the present agreement for the land falls readily in this range and conclude value at the $7 per square foot

midpoint of the range.

0.95 acres 43,560 square feet $7 per square foot = $290,000 (rounded)

Cost Approach

We estimated the reproduction cost new of the subject improvements using the Marshall and Swift Valuation

System. This system utilizes known costs of construction for similar buildings with adjustments made for

variances found using unit in place costs. Adjustments can be made for overall quality. In the absence of detailed

specifications, because of the market niche sought (upper end of the industrial rental market, small bays) we

assumed average quality construction, and adjusted for the ceiling height, mezzanine buildout, site

improvements, and the heating and cooling systems. We relied on developer supplied data for off-site costs (net)

and development cost charges.

In addition to direct costs for materials and labour, allowances must be made for related hard costs such as

building bonds and permits, contractors' overhead and profit, and temporary power. These costs are largely

included in the estimates produced by the Marshall and Swift System. Indirect costs included in the Marshall and

Swift System include design costs, some professional fees, interest and property taxes during construction of the

building component only, insurance on the building component and the like. Indirect costs excluded include

marketing costs and development profit.

The cost estimates set out below have been completed for valuation purposes and lack the accuracy of a more

detailed method, such as quantity survey.


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COST ESTIMATE FOR: Industrial Business Park

DATE OF SURVEY: September, 2011

DESCRIPTION:

------------------------------------------------------------------------------------------------------------------------

OCCUPANCY: STORAGE WAREHOUSE

FLOOR AREA: 17,781 Square Feet AVERAGE STORY HEIGHT: 24.8 Feet

CLASS: D Frame EFFECTIVE AGE: 0 Years

COST RANK: 2.0 Average CONDITION: 6.0 Excellent

NUMBER OF STORIES: 1.0 COST AS OF: 09/11

EXTERIOR WALL:

Tilt-up Concrete....................... 100%

HEATING AND COOLING:

Hot Water............................... 78%

Package Heating & Cooling......... 22%

OTHER FEATURES:

Sprinklers Serving 17,781 Square Feet

Office Mezzanine

UNITS COST TOTAL

------------------------------------------------------------------------------------------------------------------------

BASIC STRUCTURE COSTS: 17,781 57.19 1,016,895

------------------------------------------------------------------------------------------------------------------------

EXTRAS:

Paving, Asphalt................................. 20,000 3.27 65,400

Paving, Concrete................................ 3,000 5.99 17,970

Parking Lot Lighting........................... 23,000 0.33 7,590

REPLACEMENT COST NEW............... 1,107,855

------------------------------------------------------------------------------------------------------------------------

Cost Data by MARSHALL and SWIFT

Summary of Cost Approach

Land $290,000

Construction (per Marshall and Swift) $1,107,855

Total Direct Costs $1,397,855

Soft Costs

Marketing (per realtor quote) $42,000

Land taxes during construction $2,000

Interest and financing (per bank quote) $79,000

Total Soft Costs $123,000

Total Direct Cost to Developer $1,520,855

Profit @ 10% $152,085

Total Developer's Costs $1,672,940

Rounded to: $1,673,000

Our analysis of development costs totals to $1,673,000, including a developer's profit and fee allowance of 10%

or $152,085. The developer provided a copy of the current project budget, which shows costs of $1,575,000,

inclusive of land at $280,000. This sum is approximately $98,000 less than our conclusion ($1,673,000 -

$1,575,000). The developer's analyses excludes all engineering and design costs, and this contributes to part of

the variance. Given the margin of uncertainty inherent in appraisal cost analysis, we conclude that the variance

with the developer's estimate is not material.


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Income Approach

The first step in the income approach involves establishing the market rent that the property can sustain on an

ongoing basis in its marketplace. In the absence of established leasing on the proposed development, we

surveyed the local marketplace, with the following rental evidence presented for illustration purposes.

1. Unit 4A, 33733 Queen Road, New Town

A 14-year old concrete block building, relatively plain, with front parking and loading, limited

finishes, poor mezzanine buildout potential. Woodworking tenant occupies 4,000 square feet paying

$5.40 per square foot as at January 2011; $1.56 per square foot in occupancy charges.

2. Unit 2, 2979 McIntosh Road, New Town

A 20-year old M-1 zoned strata industrial building, 19,000 square feet overall, 25 parking stalls,

approximately 6,000 square feet leased July 2011 at $5.85 per square foot, plus $1.92 per square

foot in taxes.

3. Unit 5, 30856 Pitt Road, New Town

A one-year old 15,700 square foot I-2 zoned building, single-storey with front loading and

mezzanine potential. Three-phase power, 3,472 square feet available (can be subdivided as two

units) September 2011 at $8 per square foot, plus $1.50 per square foot in occupancy charges.

Automotive oriented centre.


Two-year old I-1 zoned strata industrial building, tilt-up concrete, three-phase power, front

parking, two bays of 1,500 and 2,000 square feet available September 2012 on a shell basis at

$4.75 per square foot, plus $1.30 per square foot in additional rent. Five parking stalls per unit.


Lane Industrial Park

New multi-tenant industrial development. Three-phase power, front loading and parking. Asking

rents commence at $4.95 per square foot on a shell basis as at September 2011, I-2 zoned.

6. 205 - 2316 McIntosh Road, New Town

A 17-year old two-storey building, New Town Professional Building, 960 square feet and second

floor office space, with offices and board room. Asking $9 per square foot, plus $4.78 per square

foot for additional rent. Leased as is, May 2011, C-3 zoning.


I-2 zoned 12-year old building, corner at Ace Road, 2,250 square foot offices available with

existing tenant improvements, air conditioning, and parking. Available September 2011 at $8.50

per square foot, plus $4.18 per square foot in occupancy costs.

8. 2669 Beacon Street, New Town

A 16-year old office/warehouse structure known as the WASAP Building, 16,885 square feet

overall, 35 parking stalls (2.07 stalls per 1,000 square foot of building). Entire building available

September 2011 at $6.40 per square foot, plus occupancy costs. A higher rate presumably required

in a multiple tenant situation.


M-1 zoning. A 7,297 square foot assembly of three strata warehouses offered for lease at $4.50 per

square foot warehouse and $6 per square foot showroom, 11 parking stalls (1.5 stalls per 1,000

square foot of building), forced air heat, three-phase power.


13

10. 2609 Progressive Way, New Town

M-3 zoned site nearing an acre in size. Improved with 22,940 square feet (22,600 square feet

rentable), three-year old tilt-up concrete industrial building, 15,300 square feet of warehouses (22

feet clear height), 7,300 square feet of office space, with air conditioning, grade and dock loading.

Offered for sale September 2011 with reported $121,000 net income or $5.35 per square foot

average, 1,600 square feet of office space at $7 per square foot net was leased April 2011.

Analysis

As the evidence shows, rental rates for industrial zoned properties in New Town vary with the overall size of the

unit, availability of parking, extent of office buildout, the age of the property, and the general quality and appeal

of the building. Rental rates in the foregoing data ranges from $4.50 per square foot to $9 per square foot, with

the highest rate associated with a commercial zoned office property. The highest rate associated with industrial

zoned property is $8.50 per square foot.

Index No. 1 is a 14-year old concrete block industrial building having relatively plain finishes and in a

somewhat isolated industrial area of New Town. A woodworking shop occupied 4,000 square

feet of space at $5.40 per square foot, net as at January 2011. Occupancy charges bring the gross

rent up to approximately $7 per square foot.

Index No. 2 entails a 20-year old strata industrial building on McIntosh Road. A relatively large, 6,000 square

foot tenancy was reportedly leased in July of 2011 at $5.85 per square foot, plus approximately

$1.92 per square foot in taxes.

Index No. 3 involves a Pitt Road location west of the subject. A one-year old, 15,700 square foot building is

located on an I-2 zoned site, and features front loading with mezzanine buildout potential. 3,472

square feet is available (two bays) at a rate of $8 per square foot. This is an automotive oriented

centre. Typically this type of centre will achieve higher rates, particularly with relatively low site

coverage (providing extra parking and site storage) or significant commercial exposure.

Index No. 4 is a two-year old strata industrial building located east of the property on an I-1 zoned site. Space

is available within this property on a shell basis (i.e., without tenant finishes), at $4.75 per square

foot, plus approximately $1.30 per square foot in additional rent.

Index No. 5 is another Pitt Road location, also east of the subject. The Lane Industrial Park is a large project

with units oriented both to Pitt Road as well as onto a central court yard. This is a front loading

design. Rental rates on a shell basis commence at $4.95 per square foot.

Index No. 6 is a two-storey office building known as the New Town Professional Centre. A 960 square foot,

second floor office tenancy was offered at $9 per square foot, with additional rent nearing $5 per

square foot. The property was successfully leased.

Index No. 7 is a 12-year old industrial building at Pitt Road and Ace Road. The 2,250 square feet of offices

with existing tenant improvements is available September 2011 at $8.50 per square foot, plus

$4.18 per square foot. This is a particularly useful indicator in that the property is zoned I-2 and

lies near the subject.

Index No. 8 is a 16-year old office building located on Beacon Street in New Town. This is a relatively large,

16,885 square foot building, available on a single tenancy basis at $6.40 per square foot. The

property presently holds a number of relatively, small short-term tenancies that must be relocated

for single-tenancy.


14

Index No. 9 is a Pitt Road location east of the subject. Shell warehousing space is presently available at $4.50

per square foot, with partially fitted out space (suitable for showroom space) available at $6 per

square foot. Parking is available at a rate of 1.5 stalls per 1,000 square feet of building. The

space lacks air conditioning.

Index No. 10 entails a Progressive Way location at and M-3 zoned site. The property is presently available for

sale with a reported income nearing $5.35 per square foot on average; adjusting for vacancy, bad

debt and maintenance expenses will lead to a slightly higher indicated rate. 1,600 square feet of

office space in the building was offered earlier this year, and has subsequently been leased. The

rental rate involved was $7 per square foot.

Estimating the achievable rental rates for the subject is complicated by the lack of details available with respect

to mezzanine buildout and tenant improvement requirements. Although the developer contemplates 5,000 square

feet of mezzanine space, with a particular layout that orients the finished space above the front entry, individual

units may possess a greater or lesser area of buildout. As well, the extent of buildout on the main floor, beneath

a mezzanine cannot precisely be ascertained. The developer contemplates an expenditure on tenant improvements

allowance to average $25,000 per unit or $225,000 for the nine units.

We evaluated the rentable potential for the property using two approaches. First of all, on a net effective rental

rate basis, where the tenant is responsible for all costs of tenant improvements, the achievable rental rate will lie

in the order of $5 per square foot, a rate well supported by the market data, recognizing the advantageous

parking arrangement, the efficient layout, with respect to second level office space on either end unit, the

easement over adjacent lands, and the efficient hot water heating system that will reduce tenant operating costs.

On the basis of a typical net effective rent of $5 per square foot, we can then add for typical amortization tenant

improvements (tenant improvements are typically amortized over the life of the lease, since many tenants have

improvement requirements specific to their needs). The cost of amortizing $225,000 of tenant improvements

($25,000 x 9) at a 10% interest rate over a typical five year lease term is $59,354 per year. On the basis of the

anticipated buildout of 22,781 square feet, the average cost per square foot per year is $2.60, in rounded terms.

Adding this sum to the $5 per square foot average net effective rent shows typical rent for the project at $7.60

per square foot. However, this indicator actually provides a “shell” rent to the landlord that exceeds $5 per

square foot, due to the residual value of tenant improvements. We regard this indicator as setting the high limit

of rent.

Alternatively, the rental rates for the project can be evaluated using the face rents commonly found in the

market. In this facet of the analysis, we concluded finished space in the main level will likely be identical to that

of the second level, providing total buildout in the order of 10,000 square feet, approximately 44% of a 22,781

square foot building. This is a high buildout and, in conjunction with the superior parking layout, ready access

through the site, and overall design, will attract premium rents relative to an existing market where much of the

turnkey space available was prepared at the specification of a tenant, and represents used space. We selected an

average rental rate for the project at $7 per square foot. This rate reflects an average situation, and will be less

than achievable for fully finished main floor or second floor space and more than basic shop space within the

project can achieve. Since this rental rate correlates reasonably well with that calculated through the preceding

analysis of net effective rental rates, we settled on a rate of $7 per square foot for our analysis. The resulting

estimate of net operating income follows:


15

Revenue Potential

Rental Revenues - Assume 22,781 square feet GLA @ $7 per square foot, net $159,467

Less: Vacancy and bad debt. A new project with materials, workmanship and design

assumed to meet or exceed the market standard; say 5% or (7,973)

Effective Gross Income $151,494

Less: Operating Expenses. Fully net leasing assumed in the estimated market rental

rate, with the vacancy and bad debt allowance inclusive of lost operating

cost recoveries; landlord responsibilities limited to structural repair and

maintenance, typically a modest cost for new construction, say (2,000)

Stabilized Net Operating Income $149,494

The next step in our analysis involves selection of an appropriate overall capitalization rate. To this end we

surveyed the investment property marketplace, with the following evidence selected for presentation purposes.

1. 13280 Coombs Way, Arkville

Lot A, Southeast 1/4 Section 20, Tp. 2, Plan LMP 1624

Lot Size - 270' 366' = 98,820 square feet or 2.269 acres

Zoned - I-G

Sold - October 2009 for $2,315,000

Nine-year old warehouse complex. Reportedly 52,800 square feet in two buildings. 20 foot ceiling

height, with alarm system. Owner was prepared to lease back at a reported net income of $235,000

per annum.

Overall Rate - 9.3% (adjusted)

Price/Sq.Ft. of Building - $44 (FSR - 0.53)

2. 24777 Bend Highway and 3813 - 240th Street, Hoopsville

Lot 19, Northeast 1/4, Section 27, Tp. 10, Plan 2648 and

South ½ of Lot 36, Section 27, Tp. 10, Plan 2648, Exc. Plan 51892

Lot Size - Lot 19 - 51.482 acres

- Lot 36 - 52.120 acres

3.602 acres

Zoned - M-1

Sold - November 2009 for $1,050,000

Improved with old house on one lot, and 19,000 square foot warehouse building (including 4,000

square feet of offices on two levels). Vendor leased the property back at $96,000 per annum.

Overall Rate - 8.5% (adjusted)

Price/Sq.Ft. of Building - $55 (FSR - 0.12)

3. 61-63 Steam Street, Rivertown

Lot 50, D.L. 22, Plan 55503

Lot Size - 2.66 acres

Zoned - M-1

Sold - August 2010 (closed) for $2,925,000 - offer at $3,050,000 but with a $125,000 adjustment

for roof repairs.

A tilt-up concrete warehouse/office development of 67,3305 square feet, dock loading with

levellers, rail, 24 foot ceilings, air conditioned offices, two tenants, reported net income of

$280,000.

Overall Rate - 8.8% adjusted (9.2% after allowance for roof repairs)

Rate/Sq.Ft. of Building - $45 (F.S.R. - 0.58), prior to adjustment for roof repairs.


16

4. Cliff Avenue, Runtown

(a) Lot 181, D.L. 312/351, Plan 72591

3.1 acre site improved with 51,840 square feet rentable industrial building, 5,900

square foot offices, 22 foot ceiling, 42 parking stalls, constructed 1987 with

major addition in 1978. Single tenant paying $4.50 per square foot to June 2013. Air-

conditioned.

(b) 841 Gravel Way

Lot 144, D.L. 351, Plan 58191

5.94 acre site improved with 99,609 rentable square feet industrial building.

Constructed in 1980, 238 clear, rail service. Single warehouse tenant paying $4.25 per

square foot to December 30, 2010, then $4.50 per square foot to December 31, 2012.

3,004 square foot mezzanine offices.

(c) 890 Gravel Way

4.36 acre site improved with 92,753 rentable square foot industrial building, 238 clear

ceiling, 1994 construction, 1,700 square foot of mezzanine office; good condition but

needs new roof at estimated cost of $300,000. Single tenant paying $4.50 per square

foot to June 2014.

Assembly of three properties sold by Sure Life to Tom Smith; 13.4 acres and 244,202

square feet of building overall. Adjusted net income of $1,043,964 (4% vacancy, 1%

structural maintenance as at January 1, 2011). Vendor estimated 10 year purchaser

IRR with zero inflation at 9.5%.

Sold - September 30, 2010 (closed) for $10,350,000

Indicated Overall Rate - 9.8% (adjusted for repairs).

Price/Sq.Ft. Buildable - $44 adjusted for repairs (0.42 F.S.R.)

5. 20089 - 192A Avenue, Linktown


Lot Size - 0.55 acres; 98.43 feet of frontage

Zoned - Industrial

Sold - October 2010 (agreement) for $722,000

Single-level wood frame building custom built, ABC Ambulance Station, 3,035 square feet. Lease

expires June 2010. Reported annual income from net lease of $63,920 at time of sale.

Indicated Overall Rate - 8.4% (adjusted)

Price/Sq.Ft. of Building - $238 (0.13 - F.S.R.)

6. 13680 Bridge Road and 3260 King Way, Richville

Lot 23, Section 9, Block 5 North, Range 5 West, Plan 51368, South and East Bylaw Plan 65621

Site Size - 3.49 acres

Zoned – I-2

Sold - December 2010 for $4,775,000

A two-building warehouse/office development, 20-years old, total floor area of 65,5645 square feet,

basic unit size of 3,600 square feet, dock loading, 18 foot ceilings, fully leased at $461,000 per

annum net.

Overall Rate - 9.1% adjusted

Rate/Sq.Ft. of Building - $73 (F.S.R. - 0.43)


17

7. 11460 Gauge Way, Richville

Lot 350, Section 25, Block 5 North, Range 6 West, Plan 62645


Zoned – I-4

Sold - January 2011 for $2,025,000

A 31,0005 square foot industrial building with a reported net income of $180,833 per annum.

Overall Rate - 8.9%

Rate/Sq.Ft. of Building - $65 (F.S.R. - 0.56)

8. 5700 - 6100 King Drive, Burnsville

Lot 113, D.L. 130, Plan 47649

Lot Size - 7.64 acres (332,7985 square feet)

Zoned - CD under the M-1 and M-5 designations

Listed - February 2011 for $7,500,000, reported offer in place within 5% of the asking price or

$7,125,000.

A three building warehouse/office development, areas of 48,848 and 33,800 square feet for the two

west buildings, east building of 42,950 square feet - 125,5985 square feet total (18.2% office), 24

foot height, nominal excess land, three tenants at $651,804.40 per annum net.

Overall Rate - 8.8% adjusted for the offer, 8.4% for the listing

Rate/Sq.Ft. of Building - $57 (offer) F.S.R. - 0.38

$60 (listing)

9. 7453 Professional Way, Runtown

Lot B, D.L. 129, Plan 72215


Zoned - I-2

Offer - February 2011 for $3,300,000

A one-storey non-basement tilt-up concrete warehouse/office of 52,2505 square feet, age of 7

years, leased at $300,000 per annum from December 1, 2008 to November 30, 2011 at $300,000

per annum net, lessee has the option to purchase and this has been exercised.

Overall Rate - 8.7%

Rate/Sq.Ft. of Building - $63 (F.S.R. - 0.50).

10. 10101 North Court, Runtown

Lot 13, D.L. 119, Plan LMP 596


Zoned - I-2

Option - to be exercised by November 30, 2011 at $3,125,000

A new tilt-up concrete building of 53,4255 square feet, 8,800 square feet of two-storey office,

45,415 square feet of 24 foot clear warehouse, approximately 0.75 acres of surplus land, leased to

one tenant at $293,604 per annum net from December 2010 to November 2014, 2 further 5-year

terms at higher rents.

Overall Rate - 9.0% adjusted

Rate/Sq.Ft. of Building - $58 (F.S.R. 0.41).


18

11. 3175 Hume Road, New Town


Lot Size - 0.5 acres or 21,780 square feet

Zoned - I-2

Listed since June 2011 for $1,062,000

13,000 square feet of warehouse and office, 38% finished, good tenant improvements, full

sprinklers, constructed in 2003/04. Three-phase power, 15 parking stalls (1.2 stalls per 1,000

square feet of building), 24 feet ceilings, owner-occupied.


12. 2609 Progressive Way, New Town


Lot Size - 1478 2 3028 = 44,394 square feet

Zoned - M-3

Listed since January 2011 for $1,395,000

Level site near airport, 22,940 square feet (22,600 square feet rentable), concrete two level

building, three-phase power, grade and dock height loading. Air conditioned offices, 32% (7,300

square feet) finished office space to a good standard, $121,000 reported net income, 22 foot clear

ceilings.

Indicated Overall Rate - 8.7% (at reported net income)


Summary

Building Site/ Overall

No. Date /Sq.Ft. Sq.Ft. FSR Price $/Sq.Ft. Rate

1 10/09 52,800 98,820 0.53 $2,315,000 $44 9.3

2 11/09 19,000 156,903 0.12 1,050,000 55 8.5

3 8/10 67,330 115,870 0.58 2,925,000 45 8.8

4 9/10 244,202 583,704 0.42 10,350,000 44 9.8

5 10/10 3,035 23,958 0.13 722,000 238 8.4

6 12/10 65,564 152,024 0.43 4,775,000 73 9.1

7 1/11 31,000 55,321 0.56 2,025,000 65 8.9

8 2/11 125,598 332,798 0.38 7,125,000 57 8.8

9 2/11 52,250 104,831 0.50 3,300,000 63 8.7

10 Current 53,425 130,680 0.41 3,125,000 58 9.0

11 List 13,000 21,780 0.60 1,062,000 82 -

12 List 22,940 44,394 0.52 1,395,000 61 8.7

Subj. 9/11 22,781 41,382 0.55 - - -

Analysis

We presented evidence on 10 sales involving industrial properties situated in a variety of suburban locations.

Two listings are included for contemporary reference. One of these involves an owner-occupied property,

included for later reference in the direct comparison analysis. Overall capitalization rates shown range from

8.4% to 9.8%, with the majority of data in the vicinity of 9%.

Index No. 1 is a nine-year old warehouse complex containing two buildings having a 20 foot storey height.

This property traded in October 2009 at a rate of 9.3%, on the basis of a partial owner lease

back.


19

Index No. 2 is a two building Hoopsville property. The property traded at an overall rate of 8.5%. In this

instance the improvements are relatively poor quality and the land value comprises a substantial

proportion of overall value. As a result, redevelopment is a medium term proposition, so risk is

relatively modest. The overall rate is considered less than appropriate for the subject.

Index No. 3 is a newer tilt-up concrete development in Rivertown. This 2.7 acre site traded at an adjusted

value of $2,925,000 during the summer of 2010. The overall rate was 8.8%; however, after the

allowance for the roof repair, the overall rate rose to 9.2%: it is appropriate to evaluate this sale

using the 8.8% adjusted indicator, since the owners net cost after the roof repairs is reflected in

this rate.

Index No. 4 is a three building property sale on Aviary Island. These are relatively standard industrial

buildings; however, they were sold by an institutional investor at an overall rate of 9.8% in

September of last year. Since these are older improvements, their ability to generate rental

increases is modest. As a result, the purchaser required a higher overall rate as compensation.

Index No. 5 involves a built-to-suit provincial government arrangement in the Pine Grove area of Linktown.

This a relatively small building of a good quality. The use required a substantial site area. The

property traded recently at an overall adjusted rate of 8.4%. This is a carefree situation for an

investor and a relatively inexpensive property, so the overall rate is less than achievable for the

subject.

Index No. 6 entails a two building Richville development that is approximately 20 years old. It is a multiple

tenant building with 18 foot ceilings and dock loading. The property traded at an overall rate of

9.1% at the end of 2010.

Index No. 7 is another Richville property. This 31,000 square foot industrial building reflected a relatively

high, 0.56 floor space ratio, and traded at an 8.5% overall rate in January of 2011.

Index No. 8 is a three building warehouse/office development in Burnsville. This relatively large property has

only three tenants and is regarded as a relatively carefree situation, save for risks inherent in

losing a tenant. The overall rate of 8.8% associated with the reported offer will lie reasonably

close to that achievable to the subject, subject to considerations for location.

Index No. 9 and Index No. 10

pertained newer buildings having a single tenant and located in Runtown. These properties depict

overall rates in the order of 8.7% to 9%. These are classic, carefree rental situations.

Index No. 11 is a 13,000 square foot warehouse and office building on Hume Road in New Town. The building

is about three years old and is reportedly well built. We included data on this owner-occupied

property for later reference within the direct comparison analysis.

Index No. 12 is a 22,940 square foot warehouse and office building in New Town. The building has a high

level of fit and finish. The asking price reflects an 8.7% overall rate. After adjustments for the

negotiation margin inherent in asking prices, a higher overall rate will emerge, based on the

present income.

The proposed subject development will be new. It is of a multiple tenant nature, in an area popular for industrial

activity. The site has good access characteristics.

On the basis of the foregoing, we conclude an appropriate overall rate for the subject situation will lie in the

order of 9% to 9.25%.


20

Value = Net Income

Overall Capita lization Rate

= $149, 494

$1, 661, 0440.09

= $149, 494

$1, 616,1510.0925

Average (rounded) $1,638,000

Direct Comparison Approach

As a rental property the proposed development will hold primary appeal due to its ability to generate rental

income. However, to complete our analysis of the rental aspect, we completed a direct comparison analysis. The

analysis makes reference to the industrial building sales data.

Given the disparities in building size, we analyzed these sales and listings using the price per square foot of

building unit of comparison. On this basis, these industrial buildings traded at rates ranging from $44 to $238

per square foot, with the latter rate associated with a special purpose ambulance station, Index No. 5.

Disregarding that indicator, the range of value is from $44 to $82 per square foot.

The subject space will be new, with a substantial (44%) finished space buildout, ample parking, air conditioning

and an efficient hot water heating system. This property is superior to the majority of the data, including Index

No. 1, No. 2, No. 3, No. 4, No. 8, No. 9, No. 10, and No. 12. Data concluded to reflect the upper limit for the

property included Index No. 5 and No. 11. Indices No. 6 and No. 7, at $73 and $65 per square foot are

concluded to reasonably reflect an appropriate range for the subject. As well, Indices No. 11 and No. 12 warrant

consideration. Both are current listings which however, entail new New Town locations. Index No. 11, which

shows value at $82 per square foot, has a similar level of buildout with a slightly higher floor space ratio and

lower parking. Index No. 12 has a lower level of buildout and floor space ratio. Ceiling heights are 22 feet.

Although neither Indices No. 11 or No. 12 provide a true multi-tenant physical comparison, the data is useful in

confirming our conclusions with respect to Indices No. 6 and No. 7. On the basis of the foregoing, we conclude

market value of the proposed development, as a unsubdivided rental holding at $70 per square foot of building,

showing value rounded to $1,595,000 (22,781 square feet × $70).

Market Value Conclusion – As a Rental Project

Our analysis of the property considered three distinct approaches, with the results having a reasonable degree of

consistency; the variance is less than five percent.

Cost Approach $1,673,000

Income Approach $1,638,000

Direct Comparison Approach $1,595,000

The cost approach is useful in depicting the cost to construct a substitute. However, properties do not trade on

the basis of the reproduction costs, particularly when designed for rental use. Similarly, the direct comparison

analysis offers useful insight; however, properties such as the subject tend not to trade on the basis of direct

comparison when rental is the primary motivation for development. Therefore, our conclusion to value relies

primarily on the income approach. On the basis of the foregoing, market value of the property as an

unsubdivided rental investment is concluded as at September 8, 2011 to be:

ONE MILLION SIX HUNDRED THIRTY EIGHT THOUSAND DOLLARS

($1,638,000)


21

Strata Title Analysis

The owner intends to strata subdivide the development in order to maintain the option of future disposition via

strata sales. The availability of a strata subdivision will also enhance appeal of the property to a single purchaser.

Strata industrial units trade primarily on the basis of direct physical comparison with other projects. To this end,

we surveyed the New Town marketplace for strata industrial developments, with the following evidence selected

for presentation purposes.

1. Queen Industrial Park

33733 Queen Road, New Town

Plan LMS927

Constructed circa 1991, this concrete block and wood frame industrial development entails multiple

buildings oriented around a central parking, loading and internal transportation area. Units feature

light, three-phase power, front grade loading, natural gas heat, and 18 to 20 foot ceilings. The top

of the buildings are sheathed with prefinished metal for visual relief; however, there are no

windows at the mezzanine levels. Mezzanine buildout is limited as a result. Overhead doors

measure approximately 9' 12', strata fees circa $100 per month, M-1 zoning.

Reported Sales activity includes:

Strata Unit Size

Unit Lot /Sq.Ft. Date Price $/sq.ft. Comments

A-11 1 2,026 12/09 $95,000 $47 Some freeway exposure

B-1 21/22 4,052 2/10 188,000 46 Appx. 400 sq. ft. mezz. office

B-11 12 2,026 11/10 95,000 47 Two-100 sq. ft. offices

B-8 15 2,026 List 92,000 45 Small mezz. office/storage

B-9 13/14 4,050 List 200,000 49 Mezz. offices/storage

2. 3225 McIntosh Road, New Town

Northland District, Strata Plan NW3133

Concrete block front loading strata warehouse project, three-phase power, forced air heat, single-

storey, with smaller mezzanine offices. Built circa 1999, I-2 zoned.

Unit 5 available September 2011 at $109,888 ($73 per square foot). This 1,500 square foot unit is

leased at $8,700, or $5.80 per square foot, until April 2012 ($700 in annual expenses). Four

parking stalls. The indicated overall rate is 6.9% (adjusted) based on the asking price.

3. 3275 McIntosh Road, New Town

Plan LMP224

Concrete block strata development constructed circa 2006, three-phase power, natural gas heat, M-

3 zoned, 20 foot ceilings, grade loading, tilt-up concrete, plain interior and unit finishes; typically

one parking stall per 1,000 buildable square feet.

Reported activity includes:

Unit Strata Lot Size/Sq.Ft Date Price $/Sq.Ft.

3 3 1,800 List $89,900 $50

5 5 2,008 List 97,500 49

9 9 2,014 List 97,500 48


22

4. 33759 Moran Avenue, New Town

3.26 acres, I-2 zoned site near Old Town Highway. Proposed concrete block warehouse

development of 44,957 square feet, developer will construct strata units at asking price at $55 per

square foot for shell space. Dock and grade loading, three-phase power, gas heat, sprinklers.

5. Lane Industrial Park

31314/34 Pitt Road, New Town

Plan LMS2692

A new, multiple building strata warehouse development featuring two buildings facing Peardonville

Road and bridged by a mezzanine level office space. Standard industrial buildings to rear face onto

a central parking, loading and internal transportation court yard. Steel frame with tilt-up concrete

panels. Attractive and contemporary design, with well defined office/showrooms on grade.

Substantial mezzanine glazing, front loading, I-2 zoned, shell finish only, with rough plumbing,

sprinklers, electrical and gas, 128 2 148 overhead door, 1.6 acre site, with 58 parking stalls (1.64

stalls per 1,000 buildable square foot), 0.5 FSR

Reported activity follows:

Unit Size/Sq.Ft. Date Pric e $/Sq.Ft. Comment

101 1,898 List $203,500 $107 Commercial exposure

102 1,752 List 199,500 114 Commercial exposure

103 2,044 Sold N/A - Commercial exposure

104 6,454 List 450,000 70 Second level space




201 2,200 7/11 159,000 72 Upgraded by $20,000

202 2,200 7/11 139,900 64

203 2,200 7/11 139,900 64

204 2,200 7/11 139,900 64

301 2,200 7/11 138,000 63

302 2,200 List 149,900 68

303 2,200 List 149,900 68

304 2,200 List 149,900 68

6. 31265 Spoke Avenue, New Town

Plan LMP2576

New strata warehouse development, I-2 zoned, concrete block construction, mezzanine glazing,

back-lit awning, light, three-phase power, grade loading, 1358 2 3608 site. The design of this

project entails a single building demised to provide back-to-back strata units in the middle of the

site. Access to individual units is via a one-way road that contains parking and accommodates

loading bay activity outside the building. Congestion is a problem.

Ten units remain on the market, ranging in size from 1,063 to 1,616 square feet. Rates for shell

space start at $70,200, or $66 per square foot.

7. 2303 White Street, New Town

Plan LMS553

Constructed circa 2006, this concrete block strata warehouse features single storey front office

additions, three-phase power, gas heat, front grade loading, metal trim, no mezzanine glazing,

minimal tenant improvements.


23

Two recent sales reported: leases in place to expire January 2011:

Unit Strata Lot Size/Sq.Ft. Date Price $/Sq.Ft.

3 3 2,604 5/10 $140,468 $54

4 4 2,604 5/10 $140,468 $54

Analysis

The foregoing data reflects seven strata industrial projects in which recent sales activity for current listings prices

are available. These projects range considerably in overall quality as well as in the desirability of the location.

The majority involve inferior concrete block construction, relative to the more attractive steel frame/tilt-up

concrete panel design favoured in the market.

Index No. 1 is the Queen Industrial Park, a 20-year old relatively plain concrete block development located

some distance east of the subject. This development has limited fire resistance, lacking

sprinklers and fire proof construction. Project design is not amenable to a mezzanine buildout.

This is a very plain development, as reflected in values at $45 to $49 per square foot.

Index No. 2 and No. 3

entail adjacent McIntosh Road developments in the New Town Industrial Park, near the Old

Town/New Town Highway. These projects were developed five to seven years ago. A single

unit is presently available on the market at $73 per square foot overall, for a 1,500 square

foot space, presently leased at $5.80 per square foot. There are three current listings in

Index No. 3, at rates of $48 to $50 per square foot. Index No. 3 is of tilt-up concrete design;

however, there are minimal interior finishes.

Index No. 4 entails a 3.26 acre site near the Old Town/New Town Highway. A developer is prepared to sell

space within this new, concrete block building at a rate of $55 per square foot. The space

involves grade and dock loading as well as relatively heavy power; however, the location is

generally inferior to that of the subject.

Index No. 5 is a new industrial park development located near the subject, on Pitt Road. This project is

presently in the marketing stage. Construction is of steel frame, with tilt-up concrete panels. The

development entails a quasi-commercial front with typical industrial buildings at the rear. The

latter units offer the best comparison to the subject. The units are offered at a shell rate of $63 to

$68 per square foot. One unit sold during initial marketing phases at $72 per square foot,

reflecting upgrades to the overall project. The subject units have greater desirability than this

setting, particularly in terms of their tenant finish and economical heating systems. The parking

ratio is slightly better for the subject, which entails a “single loaded” traffic corridor rather than

a more congested double loaded traffic court such as Index No. 5.

Index No. 6 is a new strata development east of the subject, also on Spoke Avenue. This is a relatively small,

1.1 acre site, improved with a single building containing “back-to-back” units. Site circulation

for this development is poor, and this is reflected in difficult sales experience. Shell units within

this project are priced in the order of $66 per square foot.

Index No. 7 is a five-year old concrete block development located east of the subject, on White Street

nearby. Two sales occurred during late spring of 2010 at a price of $54 per square foot. This

development has a relatively attractive front pedestal office; however, there is no potential for

mezzanine storage or office space in this design.


24

The subject units compete well relative to the overall data, particularly due to the tenant improvements, site

circulation, parking and economical operating characteristics. Because of the extensive tenant improvement

buildout, units will have value exceeding that typical in the market. Perhaps the best indicator of value is Index

No. 5, the Lane Industrial Park, subject to adjustment for the improvements and design variances. We conclude

that typical units within the subject development will trade at values in the order of $75 per square foot of floor

area. Variances will exist within the project; this rate ought to be regarded as an average to which variations

will exist. Overall strata value is indicated at $1,709,000 (22,781 square feet $75, rounded). This sum

represents an aggregate of individual retail values, without discount for sales or marketing costs, sales incentive,

or holding costs.

Question for Students to Consider

Contrast the appraisal of a proposed strata industrial property with that of an existing standard industrial

building.

case study appraisal of a strata industrial property

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