Apartment Real Estate Appraisals

Apartment Appraisal Report

Apartment appraisers, who produce apartment appraisal reports, have many concerns that need to be taken into consideration before providing an opinion of value for a particular property.  There are a variety of factors that influence apartment value, starting with the neighborhood that the property is in, and the likely rents the landlord is able to get given the amenities of the building and the neighborhood.   As with any commercial property, Highest and Best use is always a consideration.  Some of the other considerations are as follows.

Districts and Apartment Neighborhoods

A Neighborhood is a group of complementary land uses. A residential neighborhood with primarily single family homes often have adjacent commercial business that provide services for the area. This is different than a District, which has one major land use with less supporting services. In major metro areas, multi-family residential districts often encompass a large geographic area. In small cities, districts of multifamily can be dispersed over a wider area, and limited in size.

Apartment units are usually rented, but can be privately owned in a cooperative or condominium development. Multifamily districts have concerns similiar to single family residential areas, but those concerns become exacerbated because of higher density. The defining characteristic of a residential apartment district is that it is composed of a high percentage of rental units.

Common property types within an apartment district include:

• Multi-story or high-rise apartment buildings
• Garden apartments
• Row houses
• Town houses
• Cooperatives

Value Influences on Apartment Districts.

Apartment value can be influenced by a variety of factors, including:

• Access to job centers or the workplace
• Access to transportation services
• Quiet enjoyment, with buffers between residential and unwanted commercial or industrial development
• Access to adjacent shopping centers, entertainment venues, parks or recreational opportunities, or cultural facilities.
• Adequate parking
• General atmosphere and appearance

Early History

Over 1,000 years ago, indigenous people in north America occupied multi-family settlements. As an example, in the 16th century, Spanish Conquistadors discovered cliff dwelling villages in the southwest. Although a dangerous location to raise families, these properties offered the inhabitants the opportunity to see enemies coming, giving them a chance to raise ladders and prepare for battle. By contrast, the oldest apartments constructed by European descendants was in 1849 in French Quarter of New Orleans.

Modern Apartment History

As was typical of most immigrants coming to the US, European's came to our shores poor, and without jobs. They had poor English skills, and their religious beliefs were not the norm in protestant America. These immigrants clustered together for support, and to house them, tenement housing was built.  These tenements could be as large as a six story "walk up" building, (no elevator).  Each family rented a small apartment, which consisted of 1 or 2 bedrooms at most. Kitchens and bathrooms were usually shared with other renters on the same floor.  Over time, these tenements deteriorated because of deferred maintenance and over crowding, and typically were unsanitary.

Initially, social services and public health was poor or non-existent. As the residents gained access to jobs their improved financial condition afforded them the opportunity to move into better residences, but those places that were vacated were often taken by new waves of immigrants. Housing statistics from the 1960's to now reveal:

• Housing units have increased at a greater rate than the population because of decreases in household size - attributable to wealth
• Nationally, over the decades, housing rate vacancy was 9-10%.
• Renters occupy about 35% of all housing units, and about 90% of apartment housing over 4 units
• Infrastructure improvements, (roadways) has pushed housing to the suburbs. Even in suburbs, housing is often in the form of apartments.
• In the apartment category, there are more medium size apartment buildings than either small or large buildings.

Market Analysis

Market analysis for apartments centers on the economic factors that bring tenants to the building. If the building is in downtown, why do they want to be there as opposed to the suburbs? Why do they want to rent in a small building as opposed to a big building? Why do they rent at a particular price point, and what kind of tenants are attracted to that price point?

To answer these questions, the property must be categorized into a particular market segment, and then that segment needs to be inventoried. What are the nearby properties that would compete for tenants with the subject? Are there physical differences between these properties such as size, building age, or location differences? What are the price differences? Are there differences in unit type, (1 bed, 2 bed, 3 bed) etc?

Neighborhood Analysis

An apartment building is in a neighborhood that has defined boundaries. The boundaries can be natural (river, mountain), or manmade (roadway, or railroad track). These boundaries showcase tenant preferences, and categorize the tenants in terms of employment and wage levels, and there preferences for amenities in their living accommodations, or preferences for nearby shopping, schools, or recreational opportunities.

Site and Property Analysis

The total market value of all apartments may very widely. There value may be influenced by their proximity to employment or schools, or by their location to roadways, shopping districts, or cultural amenities. An inspection should determine:

• The physical and functional qualities of the site size, configuration, and zoning
• Exterior improvements like fences, lighting, signage or recreational facilities
• Building design, number of stories, unit size, floor plans, and interior tenant improvements.
• The type and general condition of the building's mechanical, electrical, and plumbing systems
• Does the building have adequate parking and/or access to public transportation?

Higest and Best Use

Is the property at its Highest and Best Use? Are there other alternatives for the use of the property that would bring a higher value? Are those other uses financially feasible? Is the timing of the alternative use now, or sometime in the future?