Urban real estate appraising sometimes yields pleasant surprises, as the shortage of land in growing or geographically constricted cities can create situations in which a property’s land value can exceed its value as currently improved. I appraised a similar situation in San Francisco, California immediately before flying to San Jose, Costa Rica to appraise the property of a bankrupt boatbuilding company.
I stayed at the charming Hotel de Bergerac in the Los Yoses barrio of San Jose while making a two-kilometer walk to and from the subject property, located in the rapidly urbanizing suburb of San Pedro in the canton of Montes de Oca. Vacant lots were few to be found, and new, upscale retail stores were often built next to dilapidated, corrugated steel structures, as often occurs in Latin American cities concurrently experiencing prosperity and land shortages. Moreover, much of San Pedro had been upzoned, permitting building heights of up to 7 stories and site coverage of up to 85%.
Montes de Oca has a particular attribute contributing to its growth. It is also known as Costa Rica’s “Cradle of Higher Education”, including the Universidad de Costa Rica, Universidad Latina and Universidad Fidelitas, all located in or near San Pedro.
Arriving at the subject property, I was initially disappointed to see the physical deterioration of the various structures, most of which were aging metal buildings with rusting steel roofs. This is one of the common letdowns of foreign appraising – traveling many hours and thousands of miles to find a property that is far less than as described. It makes me anxious that someone is going to be angry with my report. The remaining physical life of these particular buildings was rather limited, although San Jose’s 96% industrial occupancy rate does prolong the usage of older buildings.
What was encouraging to see, though, were two neighboring industrial sites that had already been redeveloped with attractive new multifamily housing. San Pedro has a housing shortage and has been encouraging multifamily development.
In one of my posts last year, http://www.internationalappraiser.com/2012/07/appraisals-of-view-land-in-costa-rica.html, I described my lunch with a Costa Rican appraiser in which I asked what Costa Rican appraisers use for comparable land sales. He said that because of the lack of publicly available land sales data, the San Jose provincial government has created a map system for appraisers known as La Mapa de Valores de Terrenos, which sets a baseline value per district, which is then adjusted by appraisers for site factors such as size, zoning, commercial street frontage and terrain. The base rate for this section of San Pedro is 180,000 colones per square meter, equivalent to $358 per square meter (or $33.25 psf) at today’s exchange rate. These land values are comparable to CBD land values in many U.S. cities.
When the comparable improved property sales and listings and land sales and listings were compared, it became clear that the subject property was no longer improved at its “highest and best use”. The land value of the site, even adjusted for demolition and remediation costs, still exceeded the “value in use” of the current improvements, and there seems to be enough collateral value to support the requested loan, which, ironically, is going to be used to restart boat production.
More later, when the loan is funded.