Investment Case Study

REGIONAL SHOPPING MALL, SECOND OPINION

Bank requested second opinion as Lender questioned lease rates, expense recoveries, vacancy and going-in capitalization rates, values by Income Approach (Direct Cap and DCF) and sales used in Direct Comparison Approach. Property consisted of a multi-tenanted, regional shopping mall (± 100,000 SF) in a rural location. Mall featured local and national tenancy, a strong local market location, and received significant repositioning improvements. Market had average household income but limited direct competition.

Initial consultation with Lender about property and first opinion. Discussion with Client (Borrower) about property and improvements. Inspection and valuation of the property. Follow-up discussions with Lender and Borrower.

Vacancy and capitalization rates concluded lower, yielding higher value by Income Approach. Direct Comparison higher given project’s upgrades and specific location. Borrower secured a higher dollar loan amount based on higher value, while Lender “scooped” business from another Lender where the mortgage was held. Found market not as impacted by oil and gas sector (i.e. location quotient less than 1.0) and good capture given strong property productivity.

Improved property valuation “upon completion”: we completed economic base analysis and fundamental demand analyses; reviewed leases and discussed each tenant; reviewed operating cost information along with recent and proposed improvements; completed Argus cash flow modeling; and, undertook quantitative adjustments linked to qualitative analysis for the market rents and the comparable listings and sales. We did not include a Cost Approach.

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