By Ira Krumholz, President of
NAI Daus Property Management Division
A few months ago, most property owners received a letter from their county auditor that revealed their new 2015 re-assessment. Every six years, the Ohio Revised Code requires each county to reappraise all of their respective taxing parcels. These reappraisals are updated every three years, a triennial update. In 2015, all of the parcels in Cuyahoga, Lake, Lorain and Portage counties were updated. Mistakes can sometimes happen, especially considering these four counties include the re-assessment of approximately 800,000 parcels. In this month’s column, we are going to discuss some nuances associated with the appeal process, as not every property owner may agree with the new value that was determined as a result of this re-assessment. Considering most of the readers of this column are likely to be very familiar with the legal aspects of a tax appeal, the focus of this column will be on real estate related aspects. These generally fall into a few categories – true market value, timing and sale comparables being among the primary topics.
True Market Value (Valuation)
These days, it is commonplace for the property owner and the taxing district to each engage the services of a real estate professional to provide an appraisal or opinion of value for a property. There are many different types of value, but for taxing purposes, the goal is to determine the true market value. This is the price that a property would achieve in a competitive and open market under all conditions associated with a fair sale. Although this seems straight forward to determine, for many properties it can be anything but. For example, suppose a property is located at a very busy intersection in a desirable community. It includes a small, older building occupied by a barber shop situated on a two-acre lot. The property was valued at $200,000 but upon re-assessment, the new value is estimated to be four times greater than the former value. Further, assume that one of the properties located at the opposite corner has a similar size lot and transferred within the last couple years. The existing structure was torn down and replaced with a new drug store and the transfer price for that parcel was $1.5 million. This is a classic example of a dramatic difference between value-in-use and true market value. There is no way that a small, older barber shop could quadruple in value. However, the market data certainly suggests that the value of the underlying real estate has clearly increased. That is the goal of an appraisal or opinion of value – to determine the true market value. Click here to read the entire article.
Growing up as a child in the 1970s meant that I watched a lot of television. I was a car freak at a very early age and would always pay particular attention any time a commercial aired for a new car. Looking back at this now, two things stand out. First, aside from Ricardo Montalban touting the rich Corinthian leather of the new Chrysler Cordoba, I can’t recall all that many auto commercials actually airing – certainly not to the extent that they air today. And second, I don’t ever recall seeing any commercials focused on leasing. In fact, I never even heard of an auto lease until the mid-1980s.
This month, we are going to start a two-part series on leasing versus owning, not with a focus on automobiles but rather on real estate. In this month’s column, we will focus on some of the subjective factors involved in this decision, while next month we will focus on a more objective way to evaluate these alternatives.
Leasing is a means of obtaining the physical and partial economic use of a property for a specified period without having to obtain an ownership interest. In exchange for this right to use the property for a specific period of time and under specific conditions, the tenant agrees to pay rent. As with any other business decision, there are certain advantages and disadvantages to leasing.
Advantages of leasing
Availability of cash – Lease arrangements usually have fewer restrictions as compared to loan agreements and thus provide a form of flexible financing. They also help a business owner avoid a large initial capital outlay that could otherwise be used to invest in their core business. Click here to read the entire article.
As the Starks Would Say, Winter is Coming
By Ira Krumholz, President of NAI Daus Property Management Division
The 2015-16 edition of the Farmers’ Almanac includes a good news/bad news weather forecast for Ohio. The good news is that the fall is expected to be longer and milder than normal. But the bad news is that the winter is expected to be similar to last year – in the publication’s words, “snowfilled and frigid.”
I’m sure that you will recall how last year’s harsh winter impacted real estate, including ice dams, frozen pipes and a seemingly continuous battle to keep drives and sidewalks clear of ice and snow. This month, we will discuss some of the things that can be done now to help minimize properly-related issues in the months ahead.
Parking Lots & Sidewalks
Winter weather is especially hard on walk ways and parking lots. Not only do these areas have to endure continual freezing and thawing but also scraping and corrosive chemicals. Before the snow and ice starts to fly, take some time to thoroughly clean these areas, paying particular attention to drains and catch basins, and inspect the entire area for damages. Any smaller cracks and crevices should be filled and any larger issues should be repaired or replaced. Take some time to secure contracts for snow clearing early and prepare any snow removal equipment for the upcoming season. Finally, fall is a great time to stock up on salt or ice melt, before demand drives the prices up.
Although nature certainly takes its course with plants and landscaping during the winter, there are some things we can do to help things along. Inspect and prune plants and prepare them for winter by fertilizing, keeping in mind to protect from any potential salt or chemical exposure. Similarly, prepare lawns for winter by aerating and fertilizing. Fall is considered the best time to reseed or replant a lawn but be sure to do this early enough to allow for germination. Mark any areas that are exposed to snow plows with flags or poles. Finally, repair and winterize any irrigation systems that may be in place.
Roof and Structure
Similar to parking lots and sidewalks, the exterior envelop is also subject to the full brunt of winter. Take some time to inspect all areas, paying particular attention to exterior window and door frames, the gutter system and valleys and penetrations in the roofing system. Caulk, fill or otherwise repair any gaps, cracks or damaged areas, keeping in mind that water and ice can work their way into all sorts of areas. Any areas of bare wood should be painted, treated or otherwise covered. Finally, remove any built up leaves or debris from the roof and gutter system. Click here for full article.
Architects can play a key role in helping your company create a workspace that matches your vision of how you want the company to operate.
“An architect can sit down and interview your key people and gain an understanding of how everyone works in your business,” says Alec Pacella, managing partner and senior vice president at NAI Daus Property Management.
“He or she can understand the critical components of your business and see what parts of the office need to be more collaborative and where you need to have more privacy.”
Collaboration and open space are more popular than ever in the working world, but Pacella says too much of anything is often not a good thing.
“You need to be able to draw a line between having open space and having a total free-for-all,” Pacella says.
Smart Business spoke with Pacella about how to develop a workspace that fits the needs of your business.
What is the biggest change in today’s typical workspace?
Companies are much more efficient in the way that they use space and that amounts to less square footage.
Some of the factors pushing this trend are the increase in shared working spaces and the rise in the number of people working from home, as well as the diminished reliance on paper files.
The raised floors that would cover up all the cables and wires don’t exist anymore. Younger employees want to be more collaborative and companies are adapting to create workspaces that facilitate that kind of working environment with the goal of boosting productivity. Click here to continue.
On the eve of yet another youth soccer season, I recently took my son to the sporting goods store to buy a new pair of soccer shoes. We narrowed the choice to three – a relatively inexpensive pair, a moderately priced pair and an expensive pair. And to my surprise (or shock), my son didn’t immediately focus on the most expensive pair. Instead, he began to ask questions about why there was such a difference in price. And this led to a whole discussion about cost versus benefit and choosing the appropriate tool – in this case, a shoe – to fit the need.
Most investors will secure a mortgage when purchasing real estate. While there are many reasons why the use of debt is commonplace in the world of real estate, the concept of positive leverage is at the top of the list. This concept, commonly known as “the spread,” compares the unleveraged or free and clear yield of the real estate to the interest rate of a mortgage that would be used to purchase the investment. The spread is the difference between the two rates and the greater it is, the better it is for the investor. So it should be no surprise that one of the most popular forms of analysis focuses on determining the spread. But, similar to my son’s shoe decision, there are several levels of this analysis – good, better and best. And, similar to the shoes, there is certainly a cost versus benefit decision that needs to be made when choosing which specific analysis to use.
Spread between the CAP rate and the loan constant The mechanics of this particular analysis are actually pretty simple. By now, you should understand that CAP rate is determined by dividing the purchase price by the net operating income. And while the concept of a loan constant may not be familiar, it is just as simple – divide the original loan amount by the monthly payment. I will use an example for each analysis to better illustrate the process. Suppose we are looking at a property that has a purchase price of $1.4 million and an NOI of $123,404 (for details on this calculation, see the Financial Strategies column in the November 2013 issue of Properties, available at (www.propertiesmag.com). The resulting CAP rate would be 8.81%. On the debt side, we can get a loan with a 75% loan to value, 8% interest rate and a 25-year amortization. The resulting loan constant would be 9.26%. And the difference between the two, or the spread, would be 0.45%. Click here to read the rest of the article.