Valuation Report Identification of Subject Property the Essay

Download this Essay in word format (.doc)

Note: Sample below may appear distorted but all corresponding word document files contain proper formatting

Excerpt from Essay:

Valuation Report

Identification of Subject Property

The subject site is an office property in Oakville, Ontario. It can be sold either in parts or as whole, and this report will consider the whole. The size of the whole building is 4016 square feet. The property is located on the service road adjacent to the Queen Elizabeth Way (QEW), a major highway in the region that links Toronto with the cities of Hamilton and Buffalo. The property can be subdivided into multiple units, at least three. There is a current tenant occupying 839 square feet and room for two more tenants or one primary occupant.

Market Review

The market for this type of property is relatively soft at present. The prevailing economic conditions are for sluggish growth, with some observers predicting a protracted housing correction and "muted business investment." The recent federal government budget has more cuts than spending, and the lack of fiscal stimulus is likely to harm the economy for the next year or two as well (CP, 2013). With an expected decline in business investment, the market for office property is likely to be weak as well.

Oakville is a suburb located to the west of Toronto, which is Canada's business hub. Its population is around 180,000, compared with 6 million for the Greater Toronto Area (GTA) overall. The Oakville economy has traditionally been driven by industry, including a major Ford plant. The service roads along the QEW have long been hubs for office space, with developments lining virtually the entire 50km between Hamilton and downtown Toronto. The situation is the same for other freeways in the area. The GTA is Canada's economic hub, and its economic performance therefore tends to mirror that of the nation overall. A large portion of Canada's non-resource economy is situated in southern Ontario.

The market for office space in Toronto is becoming saturated. While the Canadian economy has not suffered to the same degree in recent years compared with the U.S., UK or Europe, there has been a downturn. This has led to a prolonged low interest rate environment. Given low interest rate conditions, but a fairly healthy economy overall, there has been an office building boom in the Toronto area. It is expected that by 2014 the Greater Toronto Area will add 1.59 million square feet of office space, much of it at the AAA level, which is the highest quality. Demand is coming from a wide range of industries. In recent transactions, a record price of $749 CAD per square foot was paid for the TD Canada Trust Tower in downtown Toronto. The new supply entering the market should suppress such high prices over the course of the next couple of years (Dmitrieva, 2013). This growth is also spurred by a healthy banking sector that is willing to lend.

The predictions that there is a bubble that will burst also derive from the nature of the new supply. The low interest rate environment has compelled many real estate investment trusts -- REITs -- which are a common investment vehicle in Canada, to undertake new spending. There is not always going to be demand to absorb the new supply and the market may be out of equilibrium for a few years after the building boom ends. With a glut on the market, the value of older, less desirable properties is likely to decline. The property in Oakville is precisely the type of property likely to suffer. It is older, and though well-equipped is removed from the area's prime real estate. The downturn may already be occurring -- commercial real estate investment is down 8% to start 2013. Though still above historical averages, this trend is clearly unfavorable for the market in general (RealNet, 2013).

Valuation Report

Office rentals in Oakville typically come in between $0.90-$1.00 per square foot per month, for generic buildings such as the one described. Heritage buildings can rise towards $2 per square foot per month. Thus, the annual rental income for this property is around $48,192 per year. The tax burden is low as the result of government policy to attract office buildings to diversify the civic tax base away from the Ford plant. Total costs are around $11 per square foot for taxes and utilities, and these can be passed onto the client.

The building is situated on a rectangular lot fronting the North Service Road, with one driveway providing access. There are office buildings on either side of this property. There is substantial traffic and the location is convenient for workers who live in the area. The property has been subject to interior upgrades in recent years in order to improve its market value. Fixtures and furnishings have been modernized. Inspections of plumbing, electrical and HVAC systems have found that they all have passed. The building has several parking spaces and a small square footage of landscaping in addition to the interior square footage. There is no usable exterior square footage.

The feasible use of this building, given the physical building and the zoning, is as office space. The site is not zoned for light industry. It may be possible to re-zone for retail use, though the building is not suited for retail.

The land is on the North Service Road, which is adjacent to the QEW and to Ford Road. Property on this stretch of road is licensed for either office space or light industrial, and there is substantial square footage of office space available, much of it dating from the 1980s and 1990s. The land is flat, elevated slightly from the level of Lake Ontario a few kilometres away. There are no significant environmental issues with this property. The property is subject to property tax from the City of Oakville.

The first method for determining value is the income approach to value. Using the net present value method, the property's value would therefore reflect the current cash flows, discounted in perpetuity. The current discount rate for most buyers is around 4-6% given the low interest rate environment that prevails. The discounted cash flow method gives the valuation of the property as between $800,000 and $1.2 million. This is calculated as free cash flow / discount rate. At the midpoint of $1 million, this figure equates to $249 per square foot. This figure is much lower than prime real estate in downtown Toronto.

It is also worth considering what comparable properties sell for. This is the sales comparison approach. While this property clearly should be valued at a discount to real estate in downtown Toronto, it is important to understand the local market characteristics as well. A nearby property that was built in 1969 sells for $57 per square foot, showing the disparity in the region with respect to office real estate prices. For a building that was constructed in the 1990s, the price would be around double that, depending on the location.

A nearby building with a size of 6700 square feet has sold for $1.5 million, which equates to $223 per square foot. This indicates that the investment valuation method may have overvalued the building somewhat. The nearby building is of the same age and has comparable fixtures and furnishings. Thus, it makes a great comparable. The lower price may also be attributable to the surplus of office rental property and concerns about a slowing economy in the country. The market for prime real estate may be hot, but for suburban real estate of older pedigree, the range is clearly lower. If $223 per square foot is used, our building has a value of $895,458.

A third approach to valuation is the cost approach to value. The cost approach begins with the value of the land if undeveloped. There is a property on the market that is nearby, zoned for office use,…[continue]

Cite This Essay:

"Valuation Report Identification Of Subject Property The" (2013, April 30) Retrieved December 4, 2016, from

"Valuation Report Identification Of Subject Property The" 30 April 2013. Web.4 December. 2016. <>

"Valuation Report Identification Of Subject Property The", 30 April 2013, Accessed.4 December. 2016,

Other Documents Pertaining To This Topic

  • Accounting and Intrusion Detection in a Report

    Accounting and Intrusion Detection In a report issued by Paladin Technologies, Inc., entitled: "Security Metrics: Providing Cost Justification for Security Projects," 273 organizations were surveyed on the topic of security. The report illustrates in quantifiable terms the depth and reach of intrusion detection on the financial viability of the organization. The combined reported losses from the firms surveyed totaled $265.6 million in 1999. The highest loss categories were reported as follows: Type

  • Fargo Diversity Within and Outside the Firm

    Fargo Diversity Within and Outside the Firm Wells Fargo's latest press release announces the appointment of Jimmie Walton Paschall to the post of Executive Vice President for Enterprise Diversity & Inclusion ("Wells Fargo names" 2011). This job oversees all aspects of the firm's and the firm's subsidiaries' employment and product diversity under Wells' "Social Responsibility Group" as well as other Management Committee duties ("Wells Fargo names" 2011). Chairman and CEO

  • Corporate Social Responsibility in Brunei Real Estate

    Corporate Social Responsibility in Brunei Real estate The real estate sector is highly complex and it has been raising more and more interest from the specialized economists, especially in the aftermath of the 2007 bubble burst. In order to better understand the field, the crisis and lessons to avoiding future problems, it is useful to research some of its notable dimensions, such as those listed below: The real estate appraisal profession The real estate

  • Financial System Reforms Over the

    3.2.3 Portfolio Diversification of Investment in Global Property Markets Because the global property markets are affected by globalization and specific country / regional factors, means that the overall amounts of risks will vary, the most notable include: transparency and efficiency. Where, each country / region has different on laws and regulations pertaining to the real estate markets. This means that the risks in a number of different markets will depend upon

  • Virginia Public Health Care Economics

    One of the issues with this program is that it creates a great amount of legacy costs, in that public employees still get full benefits after they retire, but don't have to pay into it, With the implementation of the new Obama Health Care law the exact impact on Virginia will vary depending upon which course is taken and whether the federal reform proposal tries to cover the expenses or

  • Environmental Systems in the Past

    Although the research tools provided by the ISO 14001 framework are both qualitative and quantitative, this approach is consistent with the guidance provided by Neuman (2003) who points out that, "Both qualitative and quantitative research use several specific research techniques (e.g., survey, interview, and historical analysis), yet there is much overlap between the type of data and the style of research. Most qualitative-style researchers examine qualitative data and vice

  • Nursing Leader

    Nursing Sills Grayce Sills and Nursing Leadership Brief Biography: Grayce Sills dedicated her life's work to improving conditions for psychiatric health patients, both through reforms in the area of psychiatric nursing and through education of future generations of nurses. During the era succeeding World War II, the psychiatric nursing profession was making its first forays into mainstream treatment orientation. Grayce Sills would emerge into the profession during this time and, in the late

Read Full Essay
Copyright 2016 . All Rights Reserved