Definition
Apartment Complex, Multifamily Appraisal – Multifamily is a relatively new product type in Latin America and is considered to be growing in importance. Multifamily is defined as apartment projects that is rented rather than sold. This allows for complete management of the property by one ownership entity. Some of the benefits of multifamily properties include the ability to lease – show apartments continuously, plan out lease maturities, and remodel common areas continuously. LOGAN offers and has completed multifamily or apartment appraisals of projects in Mexico, Colombia, Peru, and other countries in Latin America. As the asset class grows, LOGAN is prepared to grow its multifamily appraisal practice.
Types
High-rise – so far, most multifamily projects in Latin America have been high rise projects located in higher demographic areas. This is likely due to the expensive land located in infill locations and the higher quality (lower delinquency) tenants who locate in such areas.
Mid-rise – mid-rise projects have not been commonly developed in Latin America. This product type is one that can be built cheaply in the US by means of wood frame construction. This construction style is not commonly employed in Latin America.
Garden style – this multifamily type has not been built in Latin America, but could be someday in future master planned communities.
Approaches, Relevance
Cost – this approach is relevant, if the property is recently constructed.
Sales comp or market approach – there are so few multifamily comparable sales in Latin America, this approach has little relevance.
Income capitalization – A good approach as it considers the income of the property.
DCF – Most often the strongest valuation method, as the DCF allows for the modeling of future cash flows and costs.
Value Impacting Factors
Location – infill locations often have stronger demand, longer average lease terms, less turnover, and less delinquencies.
Amenities – amenities of a property often differentiate it from the ‘shadow market’ – the apartments that are bought by individual owners than rented. Often in Latin America, the shadow market has apartment properties with little or no amenities and is a differentiator for multifamily projects that typically do.
Important Inputs
Delinquencies – non-payment. This varies by market, but is an important factor closely related to renter protection laws. These laws are common in Latin America and have been one of the factors that has impeded significant investment of the asset class.
Rental growth rate – often at inflation or slightly above.
Other income – this includes extra charges such as laundry, pet fees, etc.
Average lease length – frictional vacancy.
Recent Trends
Regional platforms of multifamily in Latin America that integrate investment, construction and operation.
New projects being undertaken as the uncertainty of the asset class is diminishing.
Deliverable
Narrative Appraisal Report
A. Value impacting considerations – summary.
B. Purpose, scope, limitations of the report.
C. Land description.
D. Improvement description.
E. Scope of work.
F. Highest and best use.
G. Approaches to value.
H. Reconciliation.
I. Certification statement
