Case Study 1

Property values on a building per square foot (PSF) basis vary widely in Downtown Los Angeles. Within a couple blocks, the commercial real estate landscape can change drastically. We recently appraised an industrial building located in the Wholesale District of Downtown Los Angeles. The subject building was constructed in 1960. The improvements total 44,500 square feet (SF) and are situated on a 2.25-acre (98,150 SF) site.

We were informed that there was a prior appraisal performed by another commercial appraisal firm several weeks prior, where the subject was appraised at $95 PSF of building area, which corresponds to a value of $4,227,500.

As we do plenty of work in Los Angeles, we are aware that land is scarce and many brokers in Los Angeles, price industrial buildings on a site/land basis as well. This is an extremely important unit of measurement for commercial buildings in Downtown Los Angeles. We acknowledged that there was quite a big range on a building PSF basis ($90 to $120 PSF) of recent comparable sales of industrial properties located nearby the subject. However, on a site basis, there was a much narrower range ($48 to $52 PSF of site area). We concluded $50 PSF on a site basis and $110 PSF on a building basis, which equates to $4,910,000 (rounded). Our conclusion was further supported by interviews with local brokers.

The difference from our appraised value and the other appraisal firm was $680,000 (rounded). This is a large variance and was the difference in securing a loan and closing a sale. The other commercial appraiser clearly was not experienced and did not fully understand the Downtown Los Angeles Market.