Fundamental Market Analysis of Hypothetical Subdivision
1. Fundamental Market
Analysis
Hypothetical Subdivision Appraisal
Presenter:
Patrick M. Lamb
Lamb Hanson Lamb Appraisal Associates, Inc
2. Why is this topic relevant?
Relevance for Bankers:
• Helps answer TIMING questions
Aids in decision making process about timing of
development, (finalizing plat vs. prelim.)
Aid in cash-flow management issues.
• Helps determine financially feasible.
Un-entitled vs. Entitled
• Specific task that can be requested in the
scope of work…
3. Agenda
Introduction
• LHL past and future
What we hope to accomplish today:
• Present Hypothetical Subdivision
• Six-step process of F.M.D.
Heber will present statistical analysis
Patrick will present methodology & technique
Q & A, and other related topics
• Value of entitlements Then vs. Now
4. LHL Overview
(LambHansonLamb.com)
Four Generations-
• 1916 (Ross J. Loranger),
• 1957 (Berkley A. Lamb),
• 1970 (Michael B. Lamb),
• 2010 (Patrick M. Lamb)
Currently 20 Employees (plus 2 to 4 in external network):
• 2 MAI/SRA or SRWA
• 1 SRA
• 8 General Certified (3 MAI Candidates for 2010/2011)
• 4 Residential Certified
• 3 Trainees
• 2 Office staff
Employees are Specialized by Property Type & Location:
• Development Land, Industrial, Office/retail, Multi-family, Special Use,
Residential Form, FHA, USDA, Reviews, Development Projects,
Government…Locations are picked by familiarity and background.
Product Types:
• Self-Contained, Summary, Restrictive
• Replacement Reserve Studies for HOA/Condo Associations.
5. Six-Step Process to F.M.D.
Step 1: Define the subject property
• (Productivity Analysis)
Step 2: Define the user
• (Market Delineation)
Step 3: Forecast Demand Factors
Step 4: Inventory & Forecast Competitive Supply
Step 5: Analyze interaction of Supply & Demand
Step 6: Forecast subject Capture
These steps can be achieved by following the diagrams on the next
two page…
9. Subject Property Overview
Physical Characteristic
• 5-acre tract, +8,000 to 10,000 sf lots,
Legal Characteristics
• R4 zone, 16-lot yield (20% deductions for streets, open, etc.)
• No views
• Level topography
• Utilities in street
• Location:
• Established residential neighborhood
• Special Note: SR 2 has the most traffic accidents in the State.
• Proximity to Pass, Everett, and Eastside Employment Centers
Overall Productivity
• Average, typical for area
10. Subject Market Overview
Criteria for analysis:
• Demographics:
Population Trends:
• Components of Change
Births, Deaths, Net Migration
Projected Growth over next 5 years
• Economic Health Indicators
CPI
Employment Stats
• Commercial Property Overview
• SFR Housing Overview
11. Population Trends: Rate of Change
Population
Rate of Change
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
2001 2002 2003 2004 2005 2006 2007 2008 2009
WA State 1.12% 0.94% 1.14% 1.44% 1.91% 1.76% 1.54% 1.22% 1.00%
Sno. Co. 2.08% 1.52% 1.51% 1.15% 1.71% 2.44% 2.16% 1.50% 1.11%
Monroe 3.01% 3.24% 3.34% 2.11% 2.84% 1.57% 0.74% 1.60% 0.97%
12. Note on Net Migration
Net Migration: the majority of interstate population
movements are job related.
When local employment turned negative, like much of the
rest of the nation, Snohomish and Monroe loses some of its
“pulling” strength…Negative job growth offers very limited
opportunities for people to relocate to the area.
The City of Monroe has a stable employment base provided
by the reformatory. As a result, Monroe tends to fair better
than the County as a whole. (Last reports states 9.3%
unemployment).
15. Commercial Market Overview
2010 Emerging Trends in Real Estate report,
(PricewaterhouseCoopers and the Urban Land Institute ).
• Lackluster economic recovery
• Rents and occupancies will continue to fall well into
2010/2011
• Probably cannot gain much traction until late 2011 or 2012
• Debt-burdened consumers continue to rein in shopping
• Companies delay rehiring while looking to shave occupancy
costs and improve productivity
16. • Slack demand pushes up vacancies, new projects can’t meet
leasing projections or debt-service obligations.
• Values sink well below replacement cost
• Construction loans are getting extremely expensive
• Development doesn’t pencil out when investors can buy
existing real estate in the bargain basement
• Metro market prospects decline from coast to coast
• Cap rates in these cities rise close to or above historic
norms from unsustainably low levels.
• Buyers and Sellers in a Stalemate
• Troubled Assets Remain/Growing on Bank Balance
Sheets
17. SFR Housing Market Overview
Data sourced from NWMLS & New
Home Trends.
Summary of Discussion Topics:
• Review of Average Pricing
• Marketing Periods
• Total Unit Sales
• Snohomish vs. Monroe (Finished
Homes)
22. Market Area Concepts
Thought Process
Drive time, neighborhood continuity, features
Competitive Boundaries; City of Monroe
Distinct transportation linkage/nexus
• SR’s 522, 2
Distinct proximity to Everett & Greater Eastside
employment centers make it unique
Major hub for travel through the Pass
Physical Isolated from other cities
• based drive times
Unique Commercial node/town center
Distinct influence of reformatory
24. Consumer Profile
These characteristics provide evidence of the types of
consumers who are typically of the subject market area
and are consistent with consumers who typically desire a
housing project like those characterized by the subject
subdivision.
Political and economic conditions impact ownership ratio:
• Housing boom, pricing, tax credits, government loan
programs, (FHA, USDA), Interest write off’s, etc…
26. Criteria of Demand Forecast
Sources:
• WA Office of Financial Management
• STDB statistical trends, Census data (New census #’s coming soon).
Predicted population growth over 5 years = 1,027 people
Average household size= 2.91 people/HH
Determine single-family ownership ratio = 65.2%
Segment Demand by:
• Affordability Index
• What income level can afford these homes?
Opposite of what a broker does for home buyers…
Typical lending terms
• $225k to $440K homes, 90% LTV, (30-year/5.5%), 10% costs, 30% PITI (principle, interest, taxes,
insurance).
• Income Distribution Table
31. Supply
Summary of Discussion Topics:
• Resale Market (Existing, vacant homes)
• New Homes for sale
• Current Lot Supply
• Unrecorded Lot Supply
32. Resale & New Home Market
Within the 3-mile radius of the City of
Monroe, according to NWMLS…
35 active listings of existing, vacant, older
homes.
2 active listings of new construction
homes.
All are within the $225,000 to $440,000
range of value.
39. Methods of Absorption/Capture
Inferred analysis
• Compare performance of most comparable
competition.
• Compare average performance of competitive
subdivision.
• Base it on current subject activity.
Inferred method is subjective, most intuitive, and
most commonly used by market participants…yet will
be less reliable in current (turbulent) market.
Equal-Share method
• Statistical based…can be influenced by
productivity.
43. Equal Share Capture
There is currently an over supply in the market. Existing
competition should capture 100% of demand for at least 2
to 3 years before it is prudent to develop new lots.
Once conditions are right to build, using the equal-share
method for estimating capture, the subject property should
anticipate selling 26% of the units demanded in year 3;
16% in year 4; and 12% in year 5…(3 lots will remain to be
sold in year 6).
This indicates a subject absorption of roughly 4 years,
following a 2-year holding period, (6 years total).
47. Why is this topic relevant?
Relevance for Bankers:
• Helps answer TIMING questions
Aids in decision making process about timing of
development, (finalizing plat vs. prelim.)
Aid is cash-flow management issues.
• Helps determine financially feasible.
Un-entitled vs. Entitled
• Specific task that can be requested in the
scope of work…
48. Lamb Hanson Lamb Appraisal
Associates, Inc
Patrick M. Lamb
• (206) 838-1216
• plamb@lambhansonlamb.com
Heber Kennedy III
• (206) 838-1242
• hkennedy@lambhansonlamb.com
