7.7.14 Commercial Space Valuation

A. Unlike the valuation of the residential portion of a mixed-use project, the appraiser must value the commercial portion of the project by applying the programmatic income and space limitations used to establish the commercial NOI for calculating debt service coverage (see Chapter 3). The appraiser must:

1. Conduct a complete analysis of at least three commercial income and expense comparables and provide a photograph, the tenant’s name, type and address of business, square feet, rent, vacancy, any concessions, and major lease terms for each comparable.

2. Provide data to support the subject’s commercial vacancy rate in relation to the market commercial vacancy rate and review the rollover risk and cost of resident improvements to re-lease space. Use a vacancy factor of not less than 10% for Section 223(f), and 20% for Section 221(d) and Section 220 new construction or substantial rehabilitation, to obtain effective gross commercial income for underwriting purposes.

3. Provide the term, commencement date, expiration date, and name of the tenant, square footage, and calculation of gross rents, expenses, reimbursement of expenses, cancellation clauses, and renewal clauses for each lease.

4. Include as project operating expense all commercial expenses payable by the project owner. The analysis of all commercial income and expenses must be reflected on form HUD-92264 with all the supporting data attached to the form.