1. 2 the valuation of warehouses presented at: appraisal institute dallas, texas july 28, 2015 the...

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Appraisal InstituteDallas, Texas

“AI Connect” 2015

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“That’s Logistics”

or

“The Valuation of Warehouses”

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The Valuation of WarehousesPresented At:

Appraisal Institute

Dallas, Texas

July 28, 2015

The Valuation of Warehouses

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The Valuation of WarehousesDeveloper & Presenter:

C. Kevin Bokoske, MAI

Broward County Real Property

Fort Lauderdale, Florida


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THAT’S LOGISTICS


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“You Don’t Know What You Don’t Know”

- BUT -

“You Don’t Have to Know it, if You Know About it”


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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


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SEMINAR OBJECTIVES

1. Introduce Broad Overview of “Logistics”

2. Explore Warehouses as a Property Type

3. Increase Ability to Value Warehouses


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Logistics - Defined“The management of the flow of goods and services between the point of origin and the point of consumption.”

From: Wikipedia, the free encyclopedia


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Logistics – Involves:InformationTransportationInventoryWarehousingMaterial HandlingPackagingSecurity


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Logistics

A channel of the supply chainAdds value of time and place utilityGlobal economy means global supply

chainBegan as business concept in 1950s


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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


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Logistics

Where do “WAREHOUSES” fit into this picture?


The Valuation of Warehouses 14

Introduction


Introduction


What is the Missing Piece?


What is Missing?

The missing piece is………


Warehousing!!

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Four P’s of Marketing

PriceProductPlace (=Distribution)Promotion


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Move Goods To Consumers

Channels of Distribution

- Or -Supply Chain

- Or -Logistics


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Terms To Know

What is “JIT”?


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Terms To Know: “JIT”

“JIT” = Just in Time Delivery


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JITDeveloped by Toyota 1980s:Reduced inventorySaved moneySaved timeIncreased efficiency


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Events Affecting JITEarthquake (Japan)West Coast Labor Strife


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Dock After LA Port Strike


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


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Ex.: “JIT” Challenge


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Ex.: “JIT” Challenge-BoeingItaly

Japan

USA

Australia

Canada

France

U.K.

Sweden


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Ex.: “JIT” - i Phone 6


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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


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


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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)


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Terms To Know

What is “Belly Cargo”?


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Logistics Belly Cargo


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Logistics Belly Cargo


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Logistics Air Cargo


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Air Cargo Planes


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Air CargoAir Freight Only

FedExUPSDHL


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Air CargoTOP U.S. AIRPORTS: CARGO

1. Memphis 4,138,644 Tons

2. Anchorage 2,438,534 Tons

3. Louisville 2,216,079 Tons

4. Los Angeles 1,926,050 Tons

5. Miami 1,864,269 Tons

6. Chicago ORD 1,434,377 Tons


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Air CargoTOP U.S. AIRPORTS: CARGO

7. New York JFK 1,288,582 Tons

8. Indianapolis 1,092,652 Tons

9. Dallas 652,303 Tons

10. Newark 650,541 Tons

11. Atlanta 616,365 Tons

12. Oakland 504,019 Tons


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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.


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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.


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LTL

What is “LTL”?

LTL=Less Truckload Delivery


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Consider….

HOW DOES “STUFF” GET HERE???


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CARGO CONTAINER SHIPS

PANAMA CANAL LOCKS

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CARGO SHIP SIZE1. “Panamax” ships are ships with

the maximum dimensions to fit the Panama Canal.

2. Maximum now for canal is: 1,000 feet long; 110 foot beam; 41 feet draft.

3. TEU (twenty foot equivalent units): 5,000

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#1 CONTAINER SHIP

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#1 CONTAINER SHIP

“CSCL Globe”Holds 19,100 Containers1,312 Feet LongContainers stretch 72 milesMSC building 19,224-container

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CONTAINERSHIP FACTOIDS

1. The fastest growing segment in world shipping.

2. Average containership today is 2,230 TEU.

3. Largest was 9,200 TEU.

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POST-PANAMAX

1. Need 50-ft. Channel

2. Need larger cranes

3. Four East Coast Ports=Ready

4. NY, Baltimore, Miami, Norfolk

5. US is behind Global competition

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CONTAINERSHIP FACTOIDS

1. “Post-Panamax”

2. Average containership today is 2,230 TEU. Post-Panamax will be up to 12,500 TEU.

3. Enlarge Panama Canal

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PORT GANTRY CRANE

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PORT GANTRY CRANE

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“Ro-Ro”


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


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2014 Largest U.S. Ports (TEU)1. Los Angeles, CA 3,969,845

2. Long Beach, CA 3,457,689

3. New York/Newark 2,789,542

4. Savannah, GA 1,157,680

5. Norfolk, VA 902,619

6. Oakland, CA 781,420

7. Tacoma, WA 724,691

8. Houston, TX 682,847The Valuation of Warehouses

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2014 Largest U.S. Ports (TEU)9. Charleston, SC 658,324

10. Seattle, WA 572,534

11. Miami, FL 363,719

12. Port Everglades, FL 336,462

13. Baltimore, MD 328,285

14. Philadelphia, PA 175,950

15. Wilmington, DE 162,672

16. San Juan, PR 163,114The Valuation of Warehouses

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HOW DOES STUFF GET HERE?

WHERE DOES IT GO NEXT?

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HOW DOES STUFF GET TO US?

OFTEN FROM A WAREHOUSE!

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HOW DOES STUFF GET TO US?

OFTEN TO A WAREHOUSE!

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Let’s Look at the Property

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Warehouse: Definition“A structure designed and used for the

storage of wares, goods, and merchandise.”

Warehouses are a Subclass of Industrial buildings.

Many types of Warehouses.


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Is a Warehouse Just a Box?


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All Boxes May Look Equal


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All Boxes Are Not Equal


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


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Different BoxesBuilding SizeSingle-TenantMulti-TenantGross LeaseNet LeaseBuilding TypeBuilding ConstructionTurning Radius


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Q & A

How many differences can you remember that can exist in

warehouses?

Can you name 5?


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


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Different BoxesBuilding SizeSingle-TenantMulti-TenantGross LeaseNet LeaseBuilding TypeBuilding ConstructionTurning Radius


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Different Boxes

Warehouse Types


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Warehouse TypesMega-warehouseBulk warehouseDistribution warehouseFlex-warehouseSelf-storage warehouseSteel BuildingsCold storage warehouseTruck Terminals


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Mega-WarehouseEx.: Office Space if 2% of GBA


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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.


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Q & A

How many different types of warehouses can you think of?

Can you name 5?


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Warehouse TypesMega-warehouseBulk warehouseDistribution warehouseFlex-warehouseSelf-storage warehouseSteel BuildingsCold storage warehouseTruck Terminals


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Warehouse


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Warehouse Interior


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Cold Storage Warehouse


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Cold Storage Warehouse


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Cold Storage Air Door


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Personal Property?


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Cold Storage WarehouseEntire building or just partRefrigeration. Insulation. Energy-

saving exterior doorsCostlier to buildCostlier to operateReal property?Personal property?Staff Considerations


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“CROSS-DOCKING”

Different Procedure

Different Warehouse?

Same Warehouse?


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“Cross-Docking”Definition: Process of receiving

product and shipping it out the same day or overnight; without putting it in storage

Reduce the number of “touches”Truck or Dock doors on two or more

sides; very little storage space


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% Who Cross-DockCurrently Cross-Dock: 68.5%Plan to Cross-Dock: 15.1%No plans to Cross-Dock: 15.5%Don’t know: 00.9%

(Only 50% Cross-Docked in 2008)

From 2010 Saddle Creek Corporation SurveyThe Valuation of Warehouses

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“Cross-Docking “


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


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Pioneer Metal Warehouse


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“Butler” Metal Warehouse


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Large Metal Warehouse


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Truck Terminal


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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 racks


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Self-Storage Warehouse


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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


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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)


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Flex-Warehouse


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Flex-Warehouse


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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


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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


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The Grass is Green……


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But, Is The Warehouse?


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GREEN IS GOLD1. LEED (Leadership in Energy &

Environmental Design)

2. US Green Building Council

3. Points for: Water Efficiency Energy and Atmosphere Indoor Air Quality, etc.


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LEED SCORE CARD (POINTS) Platinum Gold Silver Certified


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LEED CONSIDERATIONS Orient building on site to

control sunlight to interior Vent roof for heat escape Minimize landscaping to save

mowing and water Save and Re-use graywater

for landscaping


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“GRAYWATER”1. Water from bathroom sinks,

showers, tubs or washing machines

2. Water that has not come in contact with feces

3. May look dirty

4. Safe and clean


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


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LIGHTING CONSIDERATIONS Increase energy use by

building skylights. Computer controlled timers Motion sensors


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SUSTAINABILITY1. Green is about Sustainability

2. Green is about Cash


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SUSTAINABILITY1. LED fixtures use less energy

2. Software to control use of LED fixtures

3. Light only parts of warehouse that are in use

4. Doing right by the environment


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3PL “3PL” is Third Party LogisticsMany large, (“Fortune 500”-type)

of customers do not operate their own supply chain or logistical operations

Ordering, delivery, transportation, returns, etc., can be assigned to third party


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Third-Party Logistics Also referred to as “3PL”Arrangement 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


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Third-Party Logistics (Cont.)3PL services may include packaging,

transportation, warehousing, cross-docking, inventory management, freight forwarding, and custom brokerage

Third-party logistic providers give one-stop service for part or all of supply chain management

Different levels, from freight forwarder to non-asset based logistic providers


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Top US 3PL Warehouse (S/F) 2014 1. Exel (DHL Supply) 109,000,000 S/F

2. GENCO ATC 36,000,000 S/F

3. Ryder Supply 35,000,000 S/F

4. Americold 34,500,000 S/F

5. CEVA Logistics 33,000,000 S/F

6. Jacobson 32,000,000 S/F

7. OHL 32,000,000 S/F

8. Kenco Logistics 31,000,000 S/F


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Top US 3PL by Revenue-2014 1. C. H. Robinson $13,470,000,000

2. Expeditors $ 6,565,000,000

3. J. B. Hunt $ 5,799,000,000

4. UPS Supply Chain $ 5,758,000,000

5. Kuehne + Nagel $ 5,157,000,000

6. Uti Worldwide $ 4,180,000,000

7. Hub Group $ 3,571,000,000

8. Burris Logistics $ 3,506,000,000


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Top 3PL Global Warehouses-2014 Refrigerated by Cu. Ft.

1. AmeriCold Logistics 950,051,004 cu ft

2. Lineage Logistics 544,413,930 cu ft

3. Swire Cold Chain 304,577,596 cu ft

4. Preferred Freezer 235,100,269 cu ft

5. Nichirei Logistics 152,406,799 cu ft

6. Kloos terboer 124,403,435 cu ft

7. WersaCold Log 115,092,447 cu ft

8. Partner Logistics 101,021,075 cu ft


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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


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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


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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


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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


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In FTZ, Merchandise May Be:AssembledExhibitedCleanedManufacturedRepackagedRepairedStored and Diagnostic Tested


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FTZ Reduces Costs:Duty DeferralDuty Elimination (on Scrap)Duty ReductionState and Local Ad Valorem on

Inventory TaxExpedited Flow & Entry Reporting


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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 Rates


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FTZ Anecdotal Info:To set Rental Rate for PEV in FL:

1. Googled for list of US Ports

2. Googled for list of US Airports

3. Googled “FTZ” & Researched

4. Personalized Mass e-mail to each

5. Asked if premium for FTZ vs Non

6. Good response rate


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FTZ Anecdotal Info:Conclusion: No Premium for FTZ vs Non-FTZ


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Term: “INTERMODAL”Definition: 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.)


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INTERMODALSea/RiverHighwayRailAir


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


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TEU


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INTERMODAL ADVANTAGESStandardized containers

20-ft TEUs40-ft Boxes

Easier to moveBegan in maritime shippingUnloading time went from days to minutes


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


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Terms: “REVERSE LOGISTICS”

“REVERSE LOGISTICS”


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Reverse Logistics-Defined“Process 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


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Send it Both Ways?1. “Reverse Logistics”

2. $43,000,000,000 Cost of Returns

3. Electronic Sector Leads the Way

4. Supply Chain Complexity

5. Return-Repair-Repackage-Recycle


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Reverse Logistics1. Was “Black Hole”; no visibility

2. Now “Untapped Revenue Stream”

3. Returns no longer an after-thought

4. Can increase customer satisfaction

5. Reduce transport and admin costs

6. Reduce aftermarket support costs

7. Enhance bottom line


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Reverse Logistics-Options Scrap (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) Donations PCs? Milk? Bread? Cell phones?


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Reverse Logistics-Go Green Maximize tons-per-mile Reduces emissions Lower carbon impact Co.’s want sustainable initiatives Saves landfills if recycle returns


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Reverse Logistics-By Whom?1. Companies can do their own

2. They can outsource to 3 PLs

3. 35% surveyed say they outsource reverse logistics to 3rd party logistics

4. Whether done in-house or outsourced to 3 PLs, it requires warehouse space

5. Ironically, Reverse Logistics can also reduce warehouse requirements


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Terms to Know: “RFID”

“RFID”


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RFID Is:

Radio Frequency IDentification


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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


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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 sponges

In warehouse (DC) RFID helps control inventory, reduce labor costs


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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.


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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


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More Technology….WMS = Warehouse Management

SystemsTo control movement and storage in a

warehouseReduce inventoryReduce labor costsBetter customer serviceMore accurate inventory


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Items Affecting Warehouse Utility

COLUMN SPACING


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Column Spacing


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Column Spacing


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Columns


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Items Affecting Warehouse Costs What is it?


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Items Affecting Warehouse Costs: Sprinkler Protection

1. Building codes, insurance companies, and good business sense support the use of sprinklered buildings

2. Save Lives

3. Save Property

4. Put fires out

5. Reduce damages to products


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Items Affecting Warehouse Costs: Sprinkler Protection

1. Special consideration for sprinklers in High Bay and Automated Storage in warehouse storage facilities

2. Rack storage heights of 40 feet and over limits sprinkler choices

3. In-Rack sprinklers


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ESFR Sprinkler Protection1. ESFR: Early Suppression Fast

Response

2. Most newer Distribution and Bulk warehouses have ESFR, per IDI


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Items Affecting Warehouse Costs: ESFR Sprinkler Protection

1. ESFR 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.


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Two Different Views of the Same Building Feature:

1. Wall Height (=Height of Building as seen by the Assessor)

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


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Same Building FeatureSeen By Assessor:

1. Wall Height (=Height of Building as seen by the Assessor)

2. Wall Height is a major Cost Approach determinant

3. Used by Assessor to differentiate or segment. Used in CAMA models.

4. Value Indicator


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Same Building FeatureSeen By Tenant/Owner:

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

2. Clear Span Height is the warehouse open area with no physical obstructions

3. Used by Tenants and Owners to figure “cube” capacity; how high pallets or racks can be stacked

4. Value IndicatorThe Valuation of Warehouses

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Two Different Views of the Same Building Feature Example

1. Wall Height could be 33 feet

2. Clear Span Height could be 30 feet

3. Could be the same building!

4. Do not use terms interchangeably

5. A warehouse with a 30 foot clear span height will probably not have a 30 foot wall height


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Items Affecting Warehouse Value: Obsolescence

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


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Items Affecting Warehouse Value: Mezzanines


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Items Affecting Warehouse Value: Mezzanines

Typically a custom “add-on” that was constructed for owner/user

First generation user will likely have amortized cost of this added to the rent

Mezzanine S/F typically not included in rentable area

New owner/tenant may not need or wantMay or may not add to value


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Warehouse Sale Ad-FLL


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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


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DFW Area Warehouse Sale Ad-1


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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


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Local Warehouse Sale Ad-FL


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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.


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Local Warehouse Sale Ad-3


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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


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IDI Warehouse Lease Ad


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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


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Local Warehouse Lease Ad


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


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Self-Storage Sale Ad


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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


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Warehouse Racking


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Items Affecting Warehouse Utility

LOAD FACTOR


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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


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Terms: “The ‘F’ Factor”

Super-flat Floors


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Terms: Super-flat Floors


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Super-flat Floors


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Items Affecting Warehouse Costs: Thin Floor Slabs/Super-Flat FloorsWithout Super-flat Floors, a building is

functionally obsolete, regardless of its size

Allows lift trucks to move through a 6-foot aisle at maximum speed

Variations in floor surfaces or gradients impairs ability to move and pick loads


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Super-Flat FloorsMeasure “F” factor for floor flatness

and floor levelness. (Created by Allen Face.)

Lift trucks can pick product from increasingly higher racks

90% of warehouses use wire-guidance systems that requires flat floors


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Retro Uneven Floors?1. Pour super-flat floor over existing

floor. Raises whole floor. Affects docks and entrances. Cost $4.00 per S/F.

2. Tear out old floor. Install new super-flat floor. Cost $8.00 per S/F or more.

3. 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


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Tilt-Up Construction

Many large warehouses are “tilt-up” construction.


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Tilt-Up Construction1. Footings are installed

2. Floor slab is poured

3. Wood panel forms assembled on slab

4. Doorway and window openings made

5. Reinforcing rods are tied in

6. Inserts for lifting panels are added

7. Concrete poured into forms

8. Panels are created when solidifies


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Tilt-Up Construction9. Wood forms are removed

10. Crane hooks panel at inserts

11. Crane lifts (“tilts”) panel into place

12. Panel connected to slab and footing


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Construction

We just saw the building “go up”

What can bring it down?


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The Ring of Fire


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Earthquake Diagram


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Is Texas at Risk?


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Warehouse Quake Damage


Seismic Building Codesand Warehouses

Earth’s crust is divided into plates Can make earthquake-resistant Cannot make earthquake-proof To protect people inside To prevent collapse of structure Newer safer than older Very costly to retrofit for seismic


Seismic Building Codesand Warehouses

Most 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.


203

We All Get Old!!

What Happens to “Old” Warehouses?

- Or -What Happens to Obsolete, but “Young”, Warehouses?


204

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?


205

More Things To Ponder:Would new use change seismic

requirements?Permitting requirements?Cost to retro?Health-safety issues?Delay in permits?Delay in construction?


206

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


207


The Appraisal

208

What Approaches to Use?Cost Approach?

Yes, if Applicable


209

What Approaches to Use?Income Capitalization Approach?

Yes, if Applicable


210

What Approaches to Use?Sales Comparison Approach?

Yes, if Applicable


211

Approaches to Use

Cost Approach


212

Cost ApproachReproduction or Replacement Cost

Property Type: Storage Warehouse

Square Feet (GBA): 200,000

Marshall & Swift Section 14

Property Class: C

Property Quality: Low Cost

Property Type: Warehouse

Effective Age (Years): 5


213

Cost Approach (Cont)Base S/F Cost (Sect. 14; P.26): $28.96

Cost Multipliers

Current Cost Multiplier (Sect. 99; P.3): 1.05

Local Cost Multiplier (Sect. 99; P.7): 0.97

Perimeter Multiplier (Sect. 14; P.37): 1.00

Average Story Height (In Feet): 30

Story-Height Multiplier (Sect. 14; P.38): 1.38

Combined Multiplier: 1.41

Modified Per S/F Cost: $40.70


Cost Approach (Cont)Combined Multiplier: $40.70

Other S/F Adjustments

Heating & Cooling (Sect. 14; P.36): $8.50

Sprinklers (Sect. 14; P.36): $2.00

Dock-Height Floors (Sect. 14; P.37): $1.40

Other Adjustments: $0.00

Total Per S/F Adjustments: $11.90

Building Per S/F Cost: $52.60

Building S/F (GBA): 200,000

Preliminary Cost New of Structure: $10,520,830


Cost Approach (Cont)Fencing – Linear Feet: 2,100

Cost Per Linear Foot (Sect. 66; P.4): $15.75

Fencing Cost: $33,075

Office – Square Feet: 7,500

Cost Per S/F (Sect. 14; P.35): $30.00

Office Cost: $225,000

Site Preparation and Grading: $200,000

Indirect Costs (Finance, CPA, Brokers): $225,000


Cost Approach (Cont)Paving Area – Square Feet: 250,000

Cost Per S/F (Sect. 66; P.4): $2.00

Paving Cost: $500,000

Preliminary RCN of Improvements: $11,703,905

Entrepreneurial Incentive - % of RCN: 7.50%

Entrepreneurial Incentive: $877,793

Replacement Cost New of Improvements: $12,581,698

Improvements RCN Cost Per S/F $62.91The Valuation of Warehouses 216

Cost Approach (Cont)Life Expectancy in Years (Sect. 97; P.7): 40

RCN of Improvements: $12,581,698

Less: Physical Depreciation %: 5.00%

Less: Physical Depreciation: $629,085

Less: Functional Depreciation: $0.00

Less: External Depreciation: $0.00

Total Depreciation – All Sources: $629,085

Depreciated Cost of Improvements: $11,952,613


Cost Approach (Cont.)Site – Square Feet: 700,000

Value Per S/F: $6.50

Site Value: $4,550,000

Depreciated Cost (RCNLD): $11,952,613


Cost Approach SummaryDepreciated Cost of Improvements: $11,952,613

Plus: Value of Site $4,550,000

Value Indicated: $16,502,613

Value Indicated (Rounded): $16,500,000

Value Per S/F, Including Land: $82.51


220

Approaches to Use

Income Capitalization Approach


221

Income Capitalization ApproachInvestment Grade A

GLA (Square Feet) 200,000

Base (Market) Rental Rate Per S/F-NNN $7.00

Potential Rental Income $1,400,000

Plus: Other Income 0

Potential Gross Income (PGI) $1,400,000

Less: Vacancy and Credit Loss - % 10.00%

Less: Vacancy and Credit Loss - $ $140,000

Effective Gross Income (EGI) $1,260,000


222

Income Approach (Cont.)Effective Gross Income (EGI) $1,260,000

Common Area Maintenance (CAM) 0

Insurance @ $0.10 Per S/F $20,000

Reserves @ $0.25 Per S/F: $50,000

Miscellaneous Expenses: $110,000

Total Expenses: $180,000

Net Operating Income (NOI): $1,080,000

Capitalization Rate: 6.50%

Indicated Value: $16,615,385

Indicated Value (Rounded): $16,615,000


223

Income Approach (Cont.)

Indicated Value (Rounded): $16,615,000

GLA (Square Feet) 200,000

Value Per S/F, Including Land: $83.07


224

Approaches to Use

Sales Comparison Approach

(Excel Spreadsheets)


225

Reconcile Sales-Property

(From Excel Spreadsheets)

Sale Adjusted Sales Price

1. $20,614,000

2. $14,512,000

3. $16,474,000

4. $ 8,225,000

5. $41,040,000


226

Reconcile Sales-Per S/FSale Adjusted SP Per S/F

1. $82.46

2. $82.92

3. $82.37

4. $86.58

5. $82.08

Reconcile to: $82.00 per S/FThe Valuation of Warehouses

227

Reconcile Sales-Per S/F

Value per S/F: $82.00

Building Area: 200,000 S/F

Indicated Value: $16,400,000


228

Reconciliation – Final Value

Cost: $16,500,000

Income Cap: $16,615,000

Sales: $16,400,000

Final Value: $16,500,000


229

FUTURE???


230


Crystal Ball?

231


WHAT’S IN THE FUTURE?

232

TERM: “AMAZON EFFECT”

Effect on 3PLsEffect on Distribution/LogisticsBusiness shifts from brick-and-mortar to internet

Amazon is the 800-lb. gorillaAll will watch Amazon


233

TERM: “FINAL MILE”

Deliver product the “last mile” in what may have been a long haul from Asia or across US

J.B. Hunt has opened 90-plus warehouses for this

Two on a truck. May wear Best Buy, Home Depot, etc. garb.


234

TERM: “FINAL MILE”

Product from Mfr to WhseWarehouse to RetailerAbove use Rail-Truck-ShipHow get to treadmills, furniture, etc to Customer?

Less-than-Truckload carriers


235

TERM: “FINAL MILE” (Cont.)

Can be 100’s of milesCan be down the block (mall)All eyes on AmazonUber-type delivery?Reduce # of deliveriesStarts upstream


236

“FINAL MILE” (???)

Drones?USPS on Sundays at XMAS?

More independents?Hurt UPS and FedEx?Effect on DCs?


237

TERM: “DIMENSIONAL PRICING”

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


238

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


239

National Distribution Centers(Per IDI)

AtlantaCincinnatiChicagoDallasLAMemphisNY-NJ


240

What’s Ahead?

“Aerotropolis”


241

TERM: “AEROTROPOLIS”

City or economic hubExtends from large airportSurrounded mostly by distribution centers

Links to airport


242

TERM: “AEROTROPOLIS”

Coined by Dr. Kasarda-UNCEx.:Hong Kong. Amsterdam Singapore. Dubai. Memphis

Why Memphis? Memphis: “America’s Distribution Center”


243

Aerotropolis: Memphis, TN

RailRiverRoadRunway


245

Memphis RAIL

BNSFCSXUnion PacificNorfolk SouthernCanadian National


249

Memphis: RIVER

Mississippi RiverMinnesota to GulfLow cost shippingBulk items via bargeFourth largest inland port


251

Memphis: ROADS

Interstate 40NC to CA3rd busiest truck corridor

Interstate 65Great Lakes to Gulf


255

Memphis: RUNWAY

WHO IS THIS MAN???


257

Memphis RUNWAY

YaleMarinesPilotTwo PlanesFederal Reserve contractLittle Rock to Memphis


261

Memphis DCNew Nike Warehouse facility

Largest Nike facility outside of Beaverton, OR

2,400,000 S/FWall Height: 38 Ft.


262

Wrap it Up……….Logistics are vitalLogistics involves storageStorage often means

“warehouses”Warehouses can be seen as

“boxes”The boxes are everywhere


263

Wrap It Up…….We need the boxesThere are various boxesThere are appraisal concernsYou don’t have to know it; if you

know about it.


264

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

AI-RRS

[email protected]

954-357-6808


mailto:[email protected]

265

ReferencesApplied Technology Council and

Structural Engineers Association of California. (ATC/SEAOC Joint Venture).

Supply Chain Management Review and Logistics Management.

Ryder Supply Chain Solutions


266

References (Cont.)www.ezinearticles.comModern Materials Handlingwww.nreionline.com (National Real

Estate Investor.)Saddle Creek Corporation.

Whitepaper Series. 2011.”Cross Docking Trends Report”

www.airportbusiness.comThe Valuation of Warehouses

http://www.ezinearticles.com/

http://www.nreionline.com/

http://www.airportbusiness.com/

267

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.


268

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. 2003The Valuation of Warehouses

http://www.supplychainnetwork.com/

http://www.logisticsmgmt.com/

http://www.wbdg.org/

269

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.)


http://www.thefreelibrary.com/

270

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.


271

References (Cont.) “REVERSE LOGISTICS” By Greve

& Davis. Commissioned by UPS.www.georgiaftz.comThe Geography of Transport

Systems. Rodrigue et al. 2009. New York.

Youtube. “That’s Logistics UPS”.


http://www.georgiaftz.com/

272

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.The Valuation of Warehouses

273

References (Cont.) “The City Wire” Fort Smith, ARwww.aircargonews.netVandana Vraghubar; CIC-FLIntermec by Honeywell;

www.supplychainservices.comwww.Motorola

Solutions.com/warehouse


http://www.aircargonews.net/

http://www.supplychainservices.com/

274

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.


275

References (Cont.)Supply Chain24/7. “Last Mile E-

Commerce Delivery Starts Early”Endicia. “The Impact of Rate and

Billing Charges for 2015”


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