The Valuation of Warehouses

The Valuation of Warehouses

Appraisal InstituteDallas, TexasAI Connect 2015

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Thats Logistics

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The Valuation of Warehouses 2

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The Valuation of WarehousesPresented At:

Appraisal InstituteDallas, TexasJuly 28, 2015

The Valuation of Warehouses3

The Valuation of WarehousesDeveloper & Presenter:

C. Kevin Bokoske, MAIBroward County Real PropertyFort Lauderdale, Florida


THATS LOGISTICS


The Valuation of Warehouses

You Dont Know What You Dont Know

- BUT -

You Dont Have to Know it, if You Know About it


Importance of Logistics:

For want of a nail the shoe was lostFor want of a shoe the horse was lostFor want of a horse the rider was lostFor want of a rider the battle was lostFor want of a battle the kingdom was lost


SEMINAR OBJECTIVES

Introduce Broad Overview of LogisticsExplore Warehouses as a Property TypeIncrease Ability to Value Warehouses


Logistics - DefinedThe management of the flow of goods and services between the point of origin and the point of consumption.

From: Wikipedia, the free encyclopediaThe Valuation of Warehouses9

Logistics Involves:InformationTransportationInventoryWarehousingMaterial HandlingPackagingSecurity


Logistics

A channel of the supply chainAdds value of time and place utilityGlobal economy means global supply chainBegan as business concept in 1950s


Logistics Business Logistics can be defined as:The right itemIn the right quantityAt the right timeAt the right placeFor the right priceIn the right conditionTo the right customer


Logistics

Where do WAREHOUSES fit into this picture?


Introduction


Introduction


What is the Missing Piece?


What is Missing?The Valuation of Warehouses17

The missing piece is

Warehousing!!


Four Ps of Marketing

PriceProductPlace (=Distribution)Promotion


Move Goods To Consumers

Channels of Distribution- Or -Supply Chain- Or -Logistics


Terms To Know

What is JIT?


Terms To Know: JIT

JIT = Just in Time Delivery


JITDeveloped by Toyota 1980s:Reduced inventorySaved moneySaved timeIncreased efficiency


Events Affecting JITEarthquake (Japan)West Coast Labor Strife


Dock After LA Port Strike


Events Affecting JITEarthquake (Japan)West Coast Labor StrifePolitical Unrest (Syria)Civil Wars (Egypt, Libya)Mid-East Oil SupplyWar (Ukraine)


Ex.: JIT Challenge


Ex.: JIT Challenge-BoeingItalyJapanUSAAustraliaCanadaFrance U.K.Sweden


Ex.: JIT - i Phone 6


Ex.: JIT - i Phone 6i Phone 6i Phone 6 PlusWent on sale 9/19/2014Apple to ship 80,000,000 by Y/E Shipped from: ChinaDesigned in: CaliforniaScreen: Texas Instruments


Ex.: JIT - i Phone 6Flash Memory: MicronSemiconductors: DialogGyroscope: ST MicroelectronicsMemory: SamsungApplications Processor: SamsungAudio Controller: Cirus LogicBlue Tooth: Murata


Ex.: JIT - i Phone 6Network Components-by InfineonPower Management-by Dialog SemiWiFi Components-by MurataFrom: USA, Germany, South Korea, Tiawan, Japan, and ItalyAssembled: Shenzhen, ChinaShipped to USA and World! (JIT)


Terms To Know

What is Belly Cargo?


Logistics Belly Cargo


Logistics Belly Cargo


Logistics Air Cargo


Air Cargo Planes


Air CargoAir Freight OnlyFedExUPSDHL


Air CargoTOP U.S. AIRPORTS: CARGOMemphis 4,138,644 TonsAnchorage2,438,534 TonsLouisville2,216,079 TonsLos Angeles1,926,050 TonsMiami1,864,269 TonsChicago ORD1,434,377 Tons


Air CargoTOP U.S. AIRPORTS: CARGONew York JFK1,288,582 TonsIndianapolis1,092,652 TonsDallas 652,303 TonsNewark 650,541 TonsAtlanta 616,365 TonsOakland 504,019 Tons


Airport Premium??

JLL Research reports that the average rent for airport-near space enjoys a 11.2% premium compared to the overall market.

JLL Airport Outlook, Spring 2014.


Global Air Cargo ValueGlobal air freight comprises only 2.0% of total cargo shipped.

Global air freight represents 35.0% of the value of all commodities shipped.

JLL Airport Outlook, Spring 2014.


LTL

What is LTL?LTL=Less Truckload DeliveryThe Valuation of Warehouses43

Consider.

HOW DOES STUFF GET HERE???


45CARGO CONTAINER SHIPS

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PANAMA CANAL LOCKS

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47CARGO SHIP SIZEPanamax ships are ships with the maximum dimensions to fit the Panama Canal.Maximum now for canal is: 1,000 feet long; 110 foot beam; 41 feet draft.TEU (twenty foot equivalent units): 5,000

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48#1 CONTAINER SHIP

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49#1 CONTAINER SHIPCSCL GlobeHolds 19,100 Containers1,312 Feet LongContainers stretch 72 milesMSC building 19,224-container

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50CONTAINERSHIP FACTOIDSThe fastest growing segment in world shipping.Average containership today is 2,230 TEU.Largest was 9,200 TEU.

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51POST-PANAMAXNeed 50-ft. ChannelNeed larger cranesFour East Coast Ports=ReadyNY, Baltimore, Miami, NorfolkUS is behind Global competition

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52CONTAINERSHIP FACTOIDSPost-PanamaxAverage containership today is 2,230 TEU. Post-Panamax will be up to 12,500 TEU.Enlarge Panama Canal

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53PORT GANTRY CRANE

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54PORT GANTRY CRANE

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Ro-Ro


Ro-RoRo-Ro: Roll-On/Roll-OffWheeled cargoCars. TrucksNo cranes. Uses rampsSmall cargo component %


2014 Largest U.S. Ports (TEU)Los Angeles, CA3,969,845Long Beach, CA3,457,689New York/Newark2,789,542Savannah, GA1,157,680Norfolk, VA 902,619Oakland, CA 781,420Tacoma, WA 724,691Houston, TX 682,847


2014 Largest U.S. Ports (TEU)Charleston, SC 658,324 Seattle, WA 572,534Miami, FL 363,719Port Everglades, FL 336,462Baltimore, MD 328,285Philadelphia, PA 175,950Wilmington, DE 162,672San Juan, PR 163,114The Valuation of Warehouses58

59HOW DOES STUFF GET HERE?

WHERE DOES IT GO NEXT?

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60HOW DOES STUFF GET TO US?

OFTEN FROM A WAREHOUSE!

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61HOW DOES STUFF GET TO US?

OFTEN TO A WAREHOUSE!

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The Valuation of WarehousesLets Look at the Property62

Warehouse: DefinitionA structure designed and used for the storage of wares, goods, and merchandise.

Warehouses are a Subclass of Industrial buildings.

Many types of Warehouses.The Valuation of Warehouses63

Is a Warehouse Just a Box?The Valuation of Warehouses64

All Boxes May Look EqualThe Valuation of Warehouses65

All Boxes Are Not Equal


Different BoxesExcess LandClear Height or Clear SpanOffice Space Build-outLoading FacilitiesFloor ThicknessPower ServiceLand-to-Building RatioSize Relative to Typical BuildingThe Valuation of Warehouses67

Different BoxesBuilding SizeSingle-TenantMulti-TenantGross LeaseNet LeaseBuilding TypeBuilding ConstructionTurning RadiusThe Valuation of Warehouses68

Q & A

How many differences can you remember that can exist in warehouses?

Can you name 5?


Different BoxesExcess LandClear HeightOffice Space Build-outLoading FacilitiesFloor ThicknessPower ServiceLand-to-Building RatioSize Relative to Typical BuildingThe Valuation of Warehouses70

Different BoxesBuilding SizeSingle-TenantMulti-TenantGross LeaseNet LeaseBuilding TypeBuilding ConstructionTurning RadiusThe Valuation of Warehouses71

Different Boxes

Warehouse TypesThe Valuation of Warehouses72

Warehouse TypesMega-warehouseBulk warehouseDistribution warehouseFlex-warehouseSelf-storage warehouseSteel BuildingsCold storage warehouseTruck TerminalsThe Valuation of Warehouses73

Mega-WarehouseEx.: Office Space if 2% of GBAThe Valuation of Warehouses74

Mega-WarehouseLargest of the new generation of warehouses.Typically concrete tilt-up construction.Minimum office space. (2-5%)300,000 to 1,000,000 + square feet.Usually near major transportation and urban centers.


Q & A

How many different types of warehouses can you think of?

Can you name 5?


Warehouse TypesMega-warehouseBulk warehouseDistribution warehouseFlex-warehouseSelf-storage warehouseSteel BuildingsCold storage warehouseTruck TerminalsThe Valuation of Warehouses77

Warehouse


Warehouse Interior


Cold Storage Warehouse


Cold Storage Warehouse


Cold Storage Air Door


Personal Property?


Cold Storage WarehouseEntire building or just partRefrigeration. Insulation. Energy-saving exterior doorsCostlier to buildCostlier to operateReal property?Personal property?Staff Considerations


CROSS-DOCKING

Different Procedure

Different Warehouse?

Same Warehouse?


Cross-DockingDefinition: Process of receiving product and shipping it out the same day or overnight; without putting it in storageReduce the number of touchesTruck or Dock doors on two or more sides; very little storage space


% Who Cross-DockCurrently Cross-Dock:68.5%Plan to Cross-Dock:15.1%No plans to Cross-Dock:15.5%Dont know:00.9%

(Only 50% Cross-Docked in 2008)

From 2010 Saddle Creek Corporation Survey


Cross-Docking


Cross-Docking BenefitsImproved serviceReduced transportation costsConsolidates shipments Get products to market quickerRequires less warehouse spaceImprove inventory managementLess inventory requiredMore JIT service


Pioneer Metal Warehouse


Butler Metal Warehouse


Large Metal Warehouse


Truck Terminal


Trucking Terminal May resemble bulk warehouseOften steel constructionTemporary storage onlyMore truck doors than warehouseLess than 150 feet deepFunction is to unload, sort, and re-load trucks; not for storage and racksThe Valuation of Warehouses94

Self-Storage Warehouse






Self-Storage Warehouse Also called Mini-Warehouse.Subdivided into cubicles.Customers are residential and small businessesPurchased for income potentialClimate controlled or Open AirOn-site manager office-OptionShort-term tenants. Credit risks


Self-Storage Warehouse Question: Is there a business component in the valuation of self-storage warehouses? (Purchased for income potential.)Example: If a 10 ft X 10 ft storage unit rents for $250 a month, would you use $30.00 as the building S/F rental rate? ($250 X 12 divided by 100 S/F=$30.00)


Flex-Warehouse


Flex-Warehouse


Flex-Warehouse Low-rise structuresUsually combination of office, showroom, and warehouse spaceResembles storefront from frontOffice or showroom in front; storage or service in rear. Visit or see plansDock height floors not universalMost are multi-tenant


Flex-Warehouse Try to inspect each bay; interior build-out or finish can vary widely.Multi-tenants can increase time and cost of management.Hard to determine occupancy levels by exterior inspection onlyRents per S/F tend to be higher than plain warehouse space


The Grass is Green


But, Is The Warehouse?


GREEN IS GOLDLEED (Leadership in Energy & Environmental Design)US Green Building CouncilPoints for:Water EfficiencyEnergy and AtmosphereIndoor Air Quality, etc.


LEED SCORE CARD (POINTS)PlatinumGoldSilverCertified


LEED CONSIDERATIONSOrient building on site to control sunlight to interiorVent roof for heat escapeMinimize landscaping to save mowing and waterSave and Re-use graywater for landscaping


GRAYWATERWater from bathroom sinks, showers, tubs or washing machinesWater that has not come in contact with fecesMay look dirtySafe and clean


LEED CONSIDERATIONS (Cont.)Insulate roof (R-12)Photovoltaic roofGrass on roofInsulate walls (R-30)Use pervious pavers


LIGHTING CONSIDERATIONSIncrease energy use by building skylights.Computer controlled timersMotion sensors


SUSTAINABILITYGreen is about SustainabilityGreen is about Cash


SUSTAINABILITYLED fixtures use less energySoftware to control use of LED fixturesLight only parts of warehouse that are in useDoing right by the environment


3PL 3PL is Third Party LogisticsMany large, (Fortune 500-type) of customers do not operate their own supply chain or logistical operationsOrdering, delivery, transportation, returns, etc., can be assigned to third party


Third-Party Logistics Also referred to as 3PLArrangement in which a firm with a long and varied supply chains outsources its logistical operations to one or more specialist firms, the third party providers.3PL provides outsourced or third party logistical services to other companies


Third-Party Logistics (Cont.)3PL services may include packaging, transportation, warehousing, cross-docking, inventory management, freight forwarding, and custom brokerageThird-party logistic providers give one-stop service for part or all of supply chain managementDifferent levels, from freight forwarder to non-asset based logistic providers


Top US 3PL Warehouse (S/F) 2014 Exel (DHL Supply)109,000,000 S/FGENCO ATC 36,000,000 S/F Ryder Supply 35,000,000 S/F Americold 34,500,000 S/FCEVA Logistics 33,000,000 S/F Jacobson 32,000,000 S/FOHL 32,000,000 S/FKenco Logistics 31,000,000 S/F


Top US 3PL by Revenue-2014 C. H. Robinson $13,470,000,000Expeditors$ 6,565,000,000 J. B. Hunt$ 5,799,000,000 UPS Supply Chain$ 5,758,000,000Kuehne + Nagel$ 5,157,000,000 Uti Worldwide$ 4,180,000,000Hub Group$ 3,571,000,000Burris Logistics$ 3,506,000,000


Top 3PL Global Warehouses-2014 Refrigerated by Cu. Ft.AmeriCold Logistics950,051,004 cu ftLineage Logistics544,413,930 cu ftSwire Cold Chain304,577,596 cu ftPreferred Freezer235,100,269 cu ftNichirei Logistics152,406,799 cu ftKloos terboer124,403,435 cu ftWersaCold Log115,092,447 cu ftPartner Logistics101,021,075 cu ft


Foreign Trade Zones (FTZ)Supervised by U.S. Customs and Border ProtectionAdministered by Commerce Dept.FTZ physically within U.S.Treated as if outside U.S.DFW: $1.4 Billion in FTZ in 2012DFW: 2,400 Acres-on AirportDFW: 10,000,000 S/F warehouses


Foreign Trade Zones (FTZ)To provide competitive advantageCan eliminate custom dutiesCan locate General FTZ within 60 miles of Port of EntryCan be seaport or airport# 25 Broward County# 32 Miami Port Authority


Foreign Trade Zones (FTZ)# 39 Dallas/Fort Worth# 79 City of Tampa#136 Canaveral Port Authority#198 Volusia & Flagler Counties#218 St Lucie County-Ft Pierce#104 Savannah Airport Authority


Port Everglades FTZ #25Largest and Oldest in FLSecured. Fenced. Lighted.388,600 S/F WarehousingOther FTZ sites available in Davie and MiramarInternational Warehouse ServicesLargest exporter FTZ to Latin America


In FTZ, Merchandise May Be:AssembledExhibitedCleanedManufacturedRepackagedRepairedStored and Diagnostic TestedThe Valuation of Warehouses124

FTZ Reduces Costs:Duty DeferralDuty Elimination (on Scrap)Duty ReductionState and Local Ad Valorem on Inventory TaxExpedited Flow & Entry ReportingThe Valuation of Warehouses125

Why Do We Look at FTZ?Part of Supply ChainClients may work with FTZFTZ involves WarehousingFTZ warehouses often require appraisals:To Buy/Sell warehousesTo set Market Rental RatesThe Valuation of Warehouses126

FTZ Anecdotal Info:To set Rental Rate for PEV in FL:Googled for list of US PortsGoogled for list of US AirportsGoogled FTZ & ResearchedPersonalized Mass e-mail to eachAsked if premium for FTZ vs NonGood response rateThe Valuation of Warehouses127

FTZ Anecdotal Info:Conclusion: No Premium for FTZ vs Non-FTZThe Valuation of Warehouses128

Term: INTERMODALDefinition: Relating to transportation by more than one means of conveyance, as by truck and rail. (American Heritage Dictionary of the English Language, Fourth Edition copyright 2000 by Houghton Mifflin Company.)The Valuation of Warehouses129

INTERMODALSea/RiverHighwayRailAir


INTERMODAL VARIABLESSingle journey?Containerized?Store containers: Full? Empty?


TEU


INTERMODAL ADVANTAGESStandardized containers20-ft TEUs40-ft BoxesEasier to moveBegan in maritime shippingUnloading time went from days to minutesThe Valuation of Warehouses133

INTERMODAL ADVANTAGESCan includes reefersEach container has own IDFaster & cheaperLess damage to goodsWeather no problemSecurity is betterGOH Containers (Garments)The Valuation of Warehouses134

Terms: REVERSE LOGISTICS

REVERSE LOGISTICS


Reverse Logistics-DefinedProcess of planning, implementing and controlling the efficient flow of goods from the point of consumption to the point of origin for purposes of recapturing value or proper disposal.

Source: Ryder Supply Chain Solutions


Send it Both Ways?Reverse Logistics$43,000,000,000 Cost of Returns Electronic Sector Leads the WaySupply Chain ComplexityReturn-Repair-Repackage-Recycle


Reverse LogisticsWas Black Hole; no visibilityNow Untapped Revenue StreamReturns no longer an after-thoughtCan increase customer satisfactionReduce transport and admin costsReduce aftermarket support costsEnhance bottom line


Reverse Logistics-OptionsScrap (5% of companies do)Liquidate (10%-25% of companies do)Refurbish (25%-50% do)On-line auction (60% do)Repackage & re-stock (70% - 90% do)DonationsPCs? Milk? Bread? Cell phones?


Reverse Logistics-Go GreenMaximize tons-per-mileReduces emissionsLower carbon impactCo.s want sustainable initiativesSaves landfills if recycle returns


Reverse Logistics-By Whom?Companies can do their ownThey can outsource to 3 PLs35% surveyed say they outsource reverse logistics to 3rd party logisticsWhether done in-house or outsourced to 3 PLs, it requires warehouse spaceIronically, Reverse Logistics can also reduce warehouse requirementsThe Valuation of Warehouses141

Terms to Know: RFID

RFIDThe Valuation of Warehouses142

RFID Is:

Radio Frequency IDentification


RFID TagsUses radio waves to exchange data between a reader and a tagUsed in electronic toll collection, such as Sun Pass and EZ-PassCasino chips. $1.5 million theft at Wynn Casino in LV: $0 value at deactivationSecurity in retail and in DCsLibrary books. Airline baggage


RFID TagsID badge security.May replace magnetic swipe cards.Tracks rail cars. Tag on each side of car.Used in hospital ORs to track each item used in surgery and stop misplaced spongesIn warehouse (DC) RFID helps control inventory, reduce labor costs


RFID in WarehousesOriginally to track pallets and cases through distribution centers. (DCs).Inventory immediately updates as merchandise is moved.Improvement over bar coding.More information than bar codes.Integrate stores and DCs.Walmart and DoD were leaders.


RFID in WarehousesWalmart asked vendors to place RFID tags on all shipments in 2005.Improved supply chain management.RFID reduced retail out-of-stocks by 21% versus non-RFID stores.Can read tag while moving; unlike bar codes.Used in hotels for laundry


More Technology.WMS = Warehouse Management SystemsTo control movement and storage in a warehouseReduce inventoryReduce labor costsBetter customer serviceMore accurate inventory


Items Affecting Warehouse Utility

COLUMN SPACINGThe Valuation of Warehouses149

Column Spacing


Column Spacing


Columns


Items Affecting Warehouse Costs What is it?


Items Affecting Warehouse Costs: Sprinkler ProtectionBuilding codes, insurance companies, and good business sense support the use of sprinklered buildingsSave LivesSave PropertyPut fires outReduce damages to products


Items Affecting Warehouse Costs: Sprinkler ProtectionSpecial consideration for sprinklers in High Bay and Automated Storage in warehouse storage facilitiesRack storage heights of 40 feet and over limits sprinkler choicesIn-Rack sprinklers


ESFR Sprinkler ProtectionESFR: Early Suppression Fast Response Most newer Distribution and Bulk warehouses have ESFR, per IDI


Items Affecting Warehouse Costs: ESFR Sprinkler ProtectionESFR sprinklers are designed to release 2-3 times the amount of water of conventional sprinkler heads and to emit larger droplets of water. As a result more water and a greater share of the water reaches the fire, allowing the flames to be extinguished.


Two Different Views of the Same Building Feature:Wall Height (=Height of Building as seen by the Assessor)

Clear Span Height (=Height of Building as seen by Tenants or Owner)


Same Building FeatureSeen By Assessor:Wall Height (=Height of Building as seen by the Assessor)Wall Height is a major Cost Approach determinant Used by Assessor to differentiate or segment. Used in CAMA models.Value Indicator


Same Building FeatureSeen By Tenant/Owner:Clear Span Height (=Height of Building as seen by Tenants or Owner)Clear Span Height is the warehouse open area with no physical obstructionsUsed by Tenants and Owners to figure cube capacity; how high pallets or racks can be stackedValue Indicator


Two Different Views of the Same Building Feature ExampleWall Height could be 33 feetClear Span Height could be 30 feetCould be the same building!Do not use terms interchangeablyA warehouse with a 30 foot clear span height will probably not have a 30 foot wall height


Items Affecting Warehouse Value: ObsolescenceUnder 300,000 S/F? (Local Markets)Less than 25 feet Clear Height?Minimal Parking?Not Sprinklered?Too Customized for Later Users?Thinner Floor Slabs?


Items Affecting Warehouse Value: Mezzanines


Items Affecting Warehouse Value: MezzaninesTypically a custom add-on that was constructed for owner/userFirst generation user will likely have amortized cost of this added to the rentMezzanine S/F typically not included in rentable areaNew owner/tenant may not need or wantMay or may not add to value


Warehouse Sale Ad-FLLThe Valuation of Warehouses165

Warehouse Sale Ad-FLLAddress: Fort Lauderdale (Prospect Park)Price: $5,825,000Building Size: 64,678 S/F Price/SF: $90.06Land Area: 4.41 AcresProperty Type: Industrial/WarehouseClear Span: 14 Ft. Year Built: 1990Other: Two Buildings. 5.7% Cap on Actual NOIOther: Near Fort Lauderdale Exec


DFW Area Warehouse Sale Ad-1The Valuation of Warehouses167

DFW Warehouse Sale Ad-1Price:$5,445,000Size:18,806 S/F Type:Ind/WarehouseNo. Stories:1Bldg. Class:CYear Built:1948Clear Height:20 Ft.Drive-In Doors:2Lot Size:2.51 Acres


Local Warehouse Sale Ad-FL


Local Warehouse Sale Ad-FLAddress: Plantation Price: $2,995,000Building Size: 52,207 S/F Price/SF: $57.37Land Area: 5.99 AcresProperty Type: Industrial. R&D.Clear Span: 12 Ft. Sprinklered Year Built: 1957Other: 3-Phase Electric. VacantOther: Opposite Plantation H.S.


Local Warehouse Sale Ad-3


Local Warehouse Sale Ad-3Address: Pompano Beach Price: $7,800,000Building Size: 61,527 S/F Price/SF: $126.77Land Area: 5.88 AcresProperty Type: Industrial. Cold Storage.Clear Span: 24 Ft. and 26 Ft. (18% Office)Year Built: 2005Other: 3-Phase Electric. SprinkleredOther: Andrews Avenue


IDI Warehouse Lease Ad


IDI Typical Warehouse Lease AdSpace Available: 52,782 SFRental Rate:$7.25/SF/YearNo. Parking Spaces: 52Office SF: 3430 SFNo. Dock-High Doors: 13Clear Ceiling Height: 24 ft.Description: The Property is 52,782 SF with 3,430 SF of 1 story office space


Local Warehouse Lease AdThe Valuation of Warehouses175

Local Warehouse Lease Ad2030 W. McNab, Fort Lauderdale Space Available: 103,316 SF on 4.66 AcresRental Rate: $6.95S/FLease Type: NNNDate Built: 1976. Distribution or Mfg. Dock-High Doors, Recessed: 3 # Grade-Level Doors: 3Clear Ceiling Height: 20 Ft. - 100% A/C


Self-Storage Sale Ad


Self-Storage Sale AdPrice: $10,550,000Building Size: 83,200 SFPrice/SF: $126.80Property Type: IndustrialProperty Sub-type: Self/Mini-Storage FacilityProperty Use Type: InvestmentTenancy: MultipleYear Built: 2005Lot Size: 4.35 AC


Warehouse Racking


Items Affecting Warehouse Utility

LOAD FACTORThe Valuation of Warehouses180

LOAD-CARRYING CAPACITYSlab-on-Grade designInteraction of concrete slab and soil support systemSoil prep as vital as concrete!Soil support involves:Kind of soilDegree of compactionMoisture content


Terms: The F Factor

Super-flat FloorsThe Valuation of Warehouses182

Terms: Super-flat Floors


Super-flat Floors


Items Affecting Warehouse Costs: Thin Floor Slabs/Super-Flat FloorsWithout Super-flat Floors, a building is functionally obsolete, regardless of its sizeAllows lift trucks to move through a 6-foot aisle at maximum speedVariations in floor surfaces or gradients impairs ability to move and pick loads


Super-Flat FloorsMeasure F factor for floor flatness and floor levelness. (Created by Allen Face.)Lift trucks can pick product from increasingly higher racks90% of warehouses use wire-guidance systems that requires flat floors


Retro Uneven Floors?Pour super-flat floor over existing floor. Raises whole floor. Affects docks and entrances. Cost $4.00 per S/F.Tear out old floor. Install new super-flat floor. Cost $8.00 per S/F or more.Grind away 3/8 inch to make super-flat. Only do traveled portion or 15%. Best.


Not Super Flat? Retro Uneven Floors?Super-flat floor alone cannot redeem an old building.Often other inefficient factors present.Investors and owners want super-flat floors.Floor tolerances should be measured daily.Grinding imperfections can cure.


Super Flat FloorsRaising the roof (and walls) of an older warehouse does not cure all functional obsolescence.To be efficient, lift trucks must move at top speed, picking from pallets and delivering to conveyors.Floors must be flat!Lift trucks are made for F-factors.


Super Flat FloorsFlatter floors permit 38 + feet ceiling spans.90% of warehouses use wire-guidance systems.Without flat floors, lift trucks could cave in the racks.Lasers used to lay floor


Tilt-Up Construction

Many large warehouses are tilt-up construction.The Valuation of Warehouses191



Tilt-Up ConstructionFootings are installedFloor slab is pouredWood panel forms assembled on slabDoorway and window openings madeReinforcing rods are tied inInserts for lifting panels are addedConcrete poured into formsPanels are created when solidifies


Tilt-Up Construction Wood forms are removed Crane hooks panel at inserts Crane lifts (tilts) panel into place Panel connected to slab and footing




Construction

We just saw the building go up

What can bring it down?


The Ring of Fire


Earthquake Diagram


Is Texas at Risk?The Valuation of Warehouses199

Warehouse Quake DamageThe Valuation of Warehouses200

Seismic Building Codesand WarehousesEarths crust is divided into platesCan make earthquake-resistantCannot make earthquake-proofTo protect people insideTo prevent collapse of structureNewer safer than olderVery costly to retrofit for seismic


Seismic Building Codesand WarehousesMost danger: California.Also: Southern Illinois.Also: New Madrid seismic Zone.Cost: 1% to 2% of total cost of New building; much more to Retrofit. Faults can move vertically, laterally, or in combination.


We All Get Old!!

What Happens to Old Warehouses?- Or -What Happens to Obsolete, but Young, Warehouses?


Things To Ponder:Does original building code still apply?Warehouses had low standardsGrandfathered?Non-industrial uses allowed?Use change require more parking?Use change require more exits?


More Things To Ponder:Would new use change seismic requirements?Permitting requirements?Cost to retro?Health-safety issues?Delay in permits?Delay in construction?


Local Thing To Ponder:Hurricane-Hardening?Some tenants demandCostlyBig issue in Florida! Texas?The Valuation of Warehouses206

The Valuation of WarehousesThe Appraisal207

What Approaches to Use?Cost Approach?

Yes, if ApplicableThe Valuation of Warehouses208

What Approaches to Use?Income Capitalization Approach?

Yes, if ApplicableThe Valuation of Warehouses209

What Approaches to Use?Sales Comparison Approach?

Yes, if Applicable


Approaches to Use

Cost ApproachThe Valuation of Warehouses211

Cost ApproachReproduction or Replacement CostProperty Type: Storage Warehouse Square Feet (GBA):200,000 Marshall & Swift Section14Property Class:CProperty Quality:Low CostProperty Type:WarehouseEffective Age (Years):5


Cost Approach (Cont)Base S/F Cost (Sect. 14; P.26):$28.96Cost MultipliersCurrent Cost Multiplier (Sect. 99; P.3):1.05Local Cost Multiplier (Sect. 99; P.7):0.97Perimeter Multiplier (Sect. 14; P.37):1.00Average Story Height (In Feet):30Story-Height Multiplier (Sect. 14; P.38):1.38Combined Multiplier:1.41Modified Per S/F Cost:$40.70


Cost Approach (Cont)Combined Multiplier:$40.70Other S/F AdjustmentsHeating & Cooling (Sect. 14; P.36):$8.50Sprinklers (Sect. 14; P.36):$2.00Dock-Height Floors (Sect. 14; P.37):$1.40Other Adjustments:$0.00Total Per S/F Adjustments:$11.90Building Per S/F Cost:$52.60Building S/F (GBA):200,000Preliminary Cost New of Structure:$10,520,830


Cost Approach (Cont)Fencing Linear Feet:2,100Cost Per Linear Foot (Sect. 66; P.4):$15.75Fencing Cost:$33,075Office Square Feet:7,500Cost Per S/F (Sect. 14; P.35):$30.00Office Cost:$225,000Site Preparation and Grading:$200,000Indirect Costs (Finance, CPA, Brokers):$225,000


Cost Approach (Cont)Paving Area Square Feet:250,000Cost Per S/F (Sect. 66; P.4):$2.00Paving Cost:$500,000Preliminary RCN of Improvements:$11,703,905Entrepreneurial Incentive - % of RCN:7.50%Entrepreneurial Incentive:$877,793Replacement Cost New of Improvements:$12,581,698Improvements RCN Cost Per S/F$62.91


Cost Approach (Cont)Life Expectancy in Years (Sect. 97; P.7):40RCN of Improvements:$12,581,698Less: Physical Depreciation %:5.00%Less: Physical Depreciation:$629,085Less: Functional Depreciation:$0.00Less: External Depreciation:$0.00Total Depreciation All Sources:$629,085Depreciated Cost of Improvements:$11,952,613


Cost Approach (Cont.)Site Square Feet:700,000Value Per S/F: $6.50Site Value:$4,550,000Depreciated Cost (RCNLD):$11,952,613


Cost Approach SummaryDepreciated Cost of Improvements:$11,952,613Plus: Value of Site $4,550,000Value Indicated:$16,502,613Value Indicated (Rounded):$16,500,000Value Per S/F, Including Land:$82.51


Approaches to Use

Income Capitalization Approach


Income Capitalization ApproachInvestment GradeAGLA (Square Feet)200,000Base (Market) Rental Rate Per S/F-NNN$7.00Potential Rental Income$1,400,000Plus: Other Income0Potential Gross Income (PGI)$1,400,000Less: Vacancy and Credit Loss - %10.00%Less: Vacancy and Credit Loss - $$140,000Effective Gross Income (EGI)$1,260,000


Income Approach (Cont.)Effective Gross Income (EGI)$1,260,000Common Area Maintenance (CAM)0Insurance @ $0.10 Per S/F$20,000Reserves @ $0.25 Per S/F:$50,000Miscellaneous Expenses:$110,000Total Expenses:$180,000Net Operating Income (NOI):$1,080,000Capitalization Rate:6.50%Indicated Value:$16,615,385Indicated Value (Rounded):$16,615,000


Income Approach (Cont.)Indicated Value (Rounded):$16,615,000GLA (Square Feet)200,000Value Per S/F, Including Land:$83.07


Approaches to Use

Sales Comparison Approach

(Excel Spreadsheets)


Reconcile Sales-Property(From Excel Spreadsheets)SaleAdjusted Sales Price $20,614,000 $14,512,000 $16,474,000 $ 8,225,000 $41,040,000


Reconcile Sales-Per S/FSaleAdjusted SP Per S/F

$82.46 $82.92 $82.37 $86.58 $82.08

Reconcile to: $82.00 per S/F


Reconcile Sales-Per S/FValue per S/F: $82.00Building Area:200,000 S/F

Indicated Value:$16,400,000


Reconciliation Final Value

Cost: $16,500,000Income Cap: $16,615,000Sales: $16,400,000

Final Value: $16,500,000


FUTURE???


The Valuation of WarehousesCrystal Ball?230

The Valuation of WarehousesWHATS IN THE FUTURE?231

TERM: AMAZON EFFECTEffect on 3PLsEffect on Distribution/LogisticsBusiness shifts from brick-and-mortar to internetAmazon is the 800-lb. gorillaAll will watch Amazon


TERM: FINAL MILEDeliver product the last mile in what may have been a long haul from Asia or across USJ.B. Hunt has opened 90-plus warehouses for thisTwo on a truck. May wear Best Buy, Home Depot, etc. garb.


TERM: FINAL MILEProduct from Mfr to WhseWarehouse to RetailerAbove use Rail-Truck-ShipHow get to treadmills, furniture, etc to Customer?Less-than-Truckload carriers


TERM: FINAL MILE (Cont.)Can be 100s of milesCan be down the block (mall)All eyes on AmazonUber-type delivery?Reduce # of deliveriesStarts upstream


FINAL MILE (???)Drones?USPS on Sundays at XMAS?More independents?Hurt UPS and FedEx?Effect on DCs?


TERM: DIMENSIONAL PRICINGFedEx and UPS began 1/1/15Between 5 and 20 lbs.Cubic volume or weightCharge for higher of twoGround or Air deliveryEffect on Warehouses


TERM: RESHORINGOversees wages have jumpedBrings Mfg jobs back to U.S.Reduce U.S. deficitStrengthens U.S. securityProtect intellectual propertyReduce logistical costsNeed more warehouses?


National Distribution Centers(Per IDI)AtlantaCincinnatiChicagoDallasLAMemphisNY-NJ


Whats Ahead?Aerotropolis


TERM: AEROTROPOLISCity or economic hubExtends from large airportSurrounded mostly by distribution centersLinks to airport


TERM: AEROTROPOLISCoined by Dr. Kasarda-UNCEx.:Hong Kong. Amsterdam Singapore. Dubai. MemphisWhy Memphis? Memphis: Americas Distribution Center


Aerotropolis: Memphis, TNRailRiverRoadRunway


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Memphis RAILBNSFCSXUnion PacificNorfolk SouthernCanadian National


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Memphis: RIVERMississippi RiverMinnesota to GulfLow cost shippingBulk items via bargeFourth largest inland port


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Memphis: ROADSInterstate 40NC to CA3rd busiest truck corridorInterstate 65Great Lakes to Gulf


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Memphis: RUNWAY

WHO IS THIS MAN???


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Memphis RUNWAYYaleMarinesPilotTwo PlanesFederal Reserve contractLittle Rock to Memphis


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Memphis DCNew Nike Warehouse facility

Largest Nike facility outside of Beaverton, OR2,400,000 S/FWall Height: 38 Ft.The Valuation of Warehouses261

Wrap it Up.Logistics are vitalLogistics involves storageStorage often means warehousesWarehouses can be seen as boxesThe boxes are everywhereThe Valuation of Warehouses262

Wrap It Up.We need the boxesThere are various boxesThere are appraisal concernsYou dont have to know it; if you know about it.The Valuation of Warehouses263

Wrapping Up (But, Not Boxed)Thank youQ & AC. Kevin Bokoske, MAI, AI-GRS, [email protected]


ReferencesApplied Technology Council and Structural Engineers Association of California. (ATC/SEAOC Joint Venture).Supply Chain Management Review and Logistics Management.Ryder Supply Chain Solutions


References (Cont.)www.ezinearticles.comModern Materials Handlingwww.nreionline.com (National Real Estate Investor.)Saddle Creek Corporation. Whitepaper Series. 2011.Cross Docking Trends Reportwww.airportbusiness.com


References (Cont.)Council of Supply Chain Management 2009 Annual Global Conference. Innovative Warehouse Design PowerPoint by Doug Pope.Design Considerations for Warehouse Floors by Andrew K. Bowser, P.E.


References (Cont.)www.supplychainnetwork.comwww.logisticsmgmt.comMarcus&Millchap. Self-Storage Research.www.wbdg.org Warehouse Whole Building Design Guide.The Valuation of Warehouses. IAAO. C. Kevin Bokoske. 2003


References (Cont.)www.thefreelibrary.com Challenges in Appraising Simple Warehouse Properties.L. Scott Helms, IDI Corp. SVP and Regional Managing Director. Fort Lauderdale. (Reviewed presentation.)


References (Cont.)Blow, Charles and C. Kevin Bokoske. (Nov-Dec) 1998. Mass Appraisal of Flex Warehouses. The Assessment Journal.Marshall Valuation Service.McKnight, Douglas. (January) 1999. A Practical Guide to Evaluating the Functional Utility of Warehouses. The Appraisal Journal.


References (Cont.) REVERSE LOGISTICS By Greve & Davis. Commissioned by UPS.www.georgiaftz.comThe Geography of Transport Systems. Rodrigue et al. 2009. New York.Youtube. Thats Logistics UPS.


References (Cont.) North American Port Analysis, by K. C. Conway, MAI. Colliers International. White Paper. August 2012.Jacksonville Port AuthorityLoopnet.comSupplyChain24/7 News. Photo by Mike Kelly of Post-Strike LA.


References (Cont.) The City Wire Fort Smith, ARwww.aircargonews.netVandana Vraghubar; CIC-FLIntermec by Honeywell; www.supplychainservices.comwww.Motorola Solutions.com/warehouse


References (Cont.)CAPA (Center for Aviation) Air Cargo Analysis White Paper, 2013JLL Port, Airport & Global Infrastructure Report. Spring 2014.Shelby County (TN) AssessorModern Materials Handling. Top 20 3PL and Public Refrigerated Warehouses, 2014.


References (Cont.)Supply Chain24/7. Last Mile E-Commerce Delivery Starts EarlyEndicia. The Impact of Rate and Billing Charges for 2015


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The Valuation of Warehouses