TEN POINTS OF COMPARISON FOR COMPARABLE ASSETS
Knowing about comparable assets is important in a competitive environment. Every potential resident and most current residents are shopping your property and those around you. It is imperative that you do the same.
How do you determine if an asset is a comparable? According to the Appraisal Foundation a comparable asset is determined by comparability analysis:
Comparability analysis is a fundamental study in determining property value. This analysis involves a side-by-side examination of physical and transaction characteristics of the identified comparable properties relative to the subject. The reliability of this valuation technique relies heavily on the proper selection of suitable comparable properties.
Appraisal comparability is different from operational comparability. Following are ten points you can use on a spreadsheet to measure operational comparability:
PROXIMITY TO THE SUBJECT ASSET
The first order of business is determining if selected comparable assets are the right assets to analyze as comparative. Selection of the wrong grouping, or worse- missing real competitors, makes the analysis useless.
RENTS - AGGREGATE
There are asking rents and net rents with concessions. What are the variances and why?
RENTS - PER SQUARE FOOT
When there are significant differences here the amount is often reflected in a varying level of amenities and service levels. A smaller property with no on-site management will have a lower rent-per-square-foot than a full service Class A asset with on-site staff, elevators and underground parking. Simple to understand, but important to note the gap- and track the gap over time. It is often a very consistent number.
In a homogeneous submarket when age of construction is similar, floor plans will be similar. Setting that aside, it’s important to know layout and square feet for various assets to gain an understanding about pricing.
Some floor plans must be discounted heavily because of a lack of demand (read: Residents avoid them because then just don’t like the layout). Others are just stellar and people flock to them. Example: the duel master suite whereas in a two-bedroom apartment each bedroom has a master bath. Perfect for room mates.
Concessions cannot be assumed, yet they are always there on a conversational level, albeit not in writing. Once identified at competitive assets, convert the concessions to a dollar amount so that you can more easily compare the value being offered to the new residents.
Sometimes a major issue, other times not at all. Yet important to know for each comparable. Parking is not like pets where management can decide to accept or reject having pets. Parking is a fundamental necessity in many markets so its availability is a determining factor in the rental decision.
ON-SITE STORAGE AVAILABILITY
Similar to parking, properties either have this or they do not. And, similar to parking, it is very important to some residents and of no concern to others. It’s important to know if competitive assets have this capacity. For example, if your competitors offer on-site storage and your asset does not, perhaps you can arrange a discounted rate with a local public storage facility to compete more effectively.
AGE OF ASSETS
Redeveloped assets take age out of play- not all assets are redeveloped. Thus, your 1990’s product may have to compete head-to-head with a circa 1960’s development- but not all 1960’s developments. Comparative research will tell you which one’s are more directly competitive.
How do you insert this into your spreadsheet? By estimating a number, a dollar amount, from rents and concessions that are reflective of the age quotient. Sometimes this can be as easy as $1 per year (or $2 per year, or $3) based on age of assets. Thus, a 1960 asset is expected to lease for $30 less than a 1990 product everything else being equal. This is an over-simplification, of course, but age must be accounted for competitively.
UTILITY EXPENSE COMPARISONS
Residents are becoming more aware of differences in utility expenses with disparities between properties relatively easy to find. If your assets have an advantage here, point potential residents towards your asset with a utility comparison completed for them if this will assist leasing efforts.
ARCHITECTURE AND PROPERTY PRESENTATION
Last but not least is: what does it look like? Each comparable asset has some positive and negative aesthetics. I can think of a few properties with nothing (and I do mean nothing) green on property. Just concrete and asphalt. Others are lush and inviting with regionally appropriate plantings and a small fountain. Are these comparative assets? If they are in the same submarket and serving the same resident base, then yes. Converting this aspect to a dollar amount is part science, part art, and a necessary component of determining rental valuations in comps.
John Wilhoit, Jr. is President of Wilhoit Investment Network, LLC, (WIN LLC) an owner and asset manager of apartments, condominiums and town homes. Mr. Wilhoit’s career has focused on high volume, large-scale multifamily communities including market rate and mixed-finance developments. He has previously held positions with HUD, AIMCO and the Maryland Housing fund. Mr. Wilhoit holds an undergraduate degree in Business from Pepperdine University and a Masters in Urban & Regional Planning from Alabama A&M University. WIN LLC provides consulting, asset management and market analysis services for multifamily property owners.