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Authored by David C. Lennhoff, MAI, SRA, AI-GRS, the Peer-Reviewed Article Valuation of Big-Box Retail for
Assessment Purposes: Right Answer to the Wrong Question 
was published in The Appraisal Journal – 2014.

Introduction

What is it about the way big-box retail property is being valued for tax assessment purposes that results in the wrong answer? Surprisingly, it can be traced to a misunderstanding of real estate appraisal fundamentals.

These properties are never built speculatively, then put up for rent or sale. Instead, they are built to suit, and often built to suit, sold and leased back. The occupant never leaves the building. Also, they are custom built to capture a particular retailer’s business image. The exterior design is intended to strike a familiar chord with the customer. A passerby sees the exterior of a Home Depot, for example, and instantly recognizes it. The interior similarly matches the tenant/occupant’s brand standards. Unfortunately, when the property is sold—for whatever reason—the new buyer often must endeavor as hard to remove the recognizable trade dress as the original occupant invested in building it. Recently, for instance, Englewood (Lemont, Ill.-based Englewood Construction) turned a former Circuit City store into an H. H. Gregg…the work involved gutting the interior and installing the new tenant’s brand standards. The exterior was completely altered as well to make sure that customers see H. H. Gregg and not a former Circuit City. This article reviews the fundamentals that are so frequently misunderstood—value in use vs. market value, leased fee interest vs. fee simple estate, market rent vs. contract rent, and real property vs. intangible personal property—and then discusses proper application of these concepts in the context of each of the three approaches to value. Finally, a review of relevant decisions from various jurisdictions, though not comprehensive, is included to help illustrate the concepts in a legal context. Armed with this information, both property owner and assessor alike will be better prepared to understand how these properties should be properly assessed.

Read the full article here: Valuation of Big Box Retail for Assessment Purposes_Lennhoff_2014

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David C. Lennhoff, MAIC.bu-state-local-tax litigation-support-appraisalsdata-center-taxationtysons

Senior Director, Real Estate Consulting

Last updated on September 4th, 2019 at 04:28 pm

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