The Valuation of Resort Condominium Projects and Individual Units
Identifieur interne : 003168 ( Istex/Corpus ); précédent : 003167; suivant : 003169The Valuation of Resort Condominium Projects and Individual Units
Auteurs : Bruce TurnerSource :
- Journal of Property Valuation and Investment [ 0960-2712 ] ; 1994-12-01.
Abstract
Over the last 25 years, condominiums have come to form a significant part of the real estate market in Canada. Reviews the legal structuring of condominiums in British Columbia Canada, focusing on resort condominium properties in Whistler, British Columbia. Addresses the primary factors affecting value and finally deals with valuing these properties by the cost, direct comparison and income approaches.
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DOI: 10.1108/14635789410069962
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ISTEX:6A733C8C01E9E036E6D1E04701ED0BD34D57872ALe document en format XML
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Reviews the legal structuring of condominiums in British Columbia Canada, focusing on resort condominium properties in Whistler, British Columbia. 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Reviews the legal structuring of condominiums in British Columbia Canada, focusing on resort condominium properties in Whistler, British Columbia. 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Do Not Edit! --><article dtd-version="1.0" xml:lang="en" article-type="research-article"><front><journal-meta><journal-id journal-id-type="publisher-id">jpvi</journal-id><journal-id journal-id-type="doi">10.1108/jpvi</journal-id><journal-title-group><journal-title>Journal of Property Valuation and Investment</journal-title></journal-title-group><issn pub-type="ppub">0960-2712</issn><publisher><publisher-name>MCB UP Ltd</publisher-name></publisher></journal-meta><article-meta><article-id pub-id-type="doi">10.1108/14635789410069962</article-id><article-id pub-id-type="original-pdf">1120120401.pdf</article-id><article-id pub-id-type="filename">1120120401</article-id><article-categories><subj-group subj-group-type="type-of-publication"><compound-subject><compound-subject-part content-type="code">research-article</compound-subject-part><compound-subject-part content-type="label">Research paper</compound-subject-part></compound-subject></subj-group><subj-group subj-group-type="subject"><compound-subject><compound-subject-part content-type="code">cat-PMBE</compound-subject-part><compound-subject-part content-type="label">Property management & built environment</compound-subject-part></compound-subject><subj-group><compound-subject><compound-subject-part content-type="code">cat-REP</compound-subject-part><compound-subject-part content-type="label">Real estate & property</compound-subject-part></compound-subject><subj-group><compound-subject><compound-subject-part content-type="code">cat-PVF</compound-subject-part><compound-subject-part content-type="label">Property valuation & finance</compound-subject-part></compound-subject></subj-group></subj-group></subj-group></article-categories><title-group><article-title>The Valuation of Resort Condominium Projects and Individual Units</article-title></title-group><contrib-group><contrib contrib-type="author"><string-name><given-names>Bruce</given-names> <surname>Turner</surname></string-name><aff>Area Assessor with British Columbia Assessment Authority.</aff></contrib></contrib-group><pub-date pub-type="ppub"><day>01</day><month>12</month><year>1994</year></pub-date><volume>12</volume><issue>4</issue><fpage>9</fpage><lpage>36</lpage><permissions><copyright-statement>© MCB UP Limited</copyright-statement><copyright-year>1994</copyright-year><license license-type="publisher"><license-p></license-p></license></permissions><self-uri content-type="pdf" xlink:href="14635789410069962.pdf"></self-uri><abstract><p>Over the last 25 years, condominiums have come to form a significant part of the real estate market in Canada. Reviews the legal structuring of condominiums in British Columbia (Canada), focusing on resort condominium properties in Whistler, British Columbia. Addresses the primary factors affecting value and finally deals with valuing these properties by the cost, direct comparison and income approaches.</p></abstract><kwd-group><kwd>Canada</kwd><x>, </x><kwd>Discounted cash flow</kwd><x>, </x><kwd>Incentives</kwd><x>, </x><kwd>Legislation</kwd><x>, </x><kwd>Property</kwd><x>, </x><kwd>Property management</kwd><x>, </x><kwd>Valuation</kwd></kwd-group><custom-meta-group><custom-meta><meta-name>peer-reviewed</meta-name><meta-value>no</meta-value></custom-meta><custom-meta><meta-name>academic-content</meta-name><meta-value>yes</meta-value></custom-meta><custom-meta><meta-name>rightslink</meta-name><meta-value>included</meta-value></custom-meta></custom-meta-group></article-meta></front><body><sec><title>Introduction</title><p>Today, almost every country with modern building structures has, or is considering, condominium legislation.</p><p>The <xref ref-type="bibr" rid="b2">Appraisal Institute (1992)</xref> defines a condominium as “a form of fee ownership of separate units or portions of multi‐unit buildings that provides for formal filing and recording of a divided interest in real property”.</p><p>However, this definition is too narrow since many jurisdictions permit condominium development on a leasehold interest (hence not “fee ownership”) and permit condominiums with either no structures (bare land subdivisions) or with separate buildings. Therefore, a broader definition would include any subdivision of a fee or leasehold interest registered under the Condominium Act.</p><p>Ownership of a condominium unit such as a resort hotel suite implies both fee simple rights to a cubicle space defined by horizontal and vertical boundaries, and an undivided interest in common property.</p></sec><sec><title>The Condominium Market in Canada</title><p>Over the last 25 years, condominiums have come to form a significant part of the real estate market in Canada. Developers have used condominiums for land uses ranging from boat shelters and horse stables to professional offices and recreational developments.</p><p>This article will focus on resort condominium properties in Whistler, British Columbia, Canada. The valuation of both resort condominium projects and the individual condominium unit will be discussed. More specifically, this article will address the primary factors affecting the market value of condominium properties, in British Columbia (BC) Canada, and suggest methods for their valuation.</p></sec><sec><title>The Valuation Process</title><p>In valuing either entire condominium projects or an individual condominium unit, the appraiser must be knowledgeable in three areas: <list list-type="order"><list-item><label>1 </label><p>legal structuring of condominiums (rights and obligations of ownership);</p></list-item><list-item><label>2 </label><p>factors affecting the viability and value of the project and/or unit;</p></list-item><list-item><label>3 </label><p>the implications of alternative packaging of condominiums (syndication versus real estate interests).</p></list-item></list></p><p>It is of value to emphasize that many of the primary factors affecting market value at Whistler will, in general terms, apply to other types of condominium developments.</p><p><italic>Note</italic>: The valuation section of this article deals primarily with the direct comparison and income approaches because they produce the most reliable value estimates.</p></sec><sec><title>Legal Structuring of Condominiums in British Columbia (Canada)</title><p>In Canada′s three western provinces (British Columbia (BC), Alberta and Saskatchewan) condominium legislation modelled after the Conveyancing (Strata Titles) Act of New South Wales, Australia has been adopted.</p><p>The Australian legislation was an appropriate model for Canada′s western provinces because it had been successfully implemented in New South Wales which, somewhat similar to Canada, was steeped in English common law and used the same land registration system (i.e. the Torrens System – another Australian innovation).</p></sec><sec><title>Introduction of Condominium Legislation</title><p>In British Columbia, the Strata Titles Act (more recently called the Condominium Act) came into force on 1 September, 1966. The two years following its introduction saw little condominium development because lending institutions, understandably, preferred more familiar developments.</p><p>However, as the condominium concept gained popularity with lenders and investors alike, condominium developments began to flourish in British Columbia and across Canada.</p><sec><title>Features of the Condominium Act</title><p>The features of the Condominium Act which are of primary importance to the appraiser are: <list list-type="bullet"><list-item><label>• </label><p>Two‐dimensional (bare land) condominiums.</p></list-item><list-item><label>• </label><p>Three‐dimensional (typical) condominiums.</p></list-item><list-item><label>• </label><p>Freehold and leasehold condominiums.</p></list-item><list-item><label>• </label><p>Investor protection and owner‐developer responsibilities.</p></list-item></list></p><p>British Columbia′s legislation provides that a statutory condominium is created upon the deposit of a strata plan with the Registrar of Titles (i.e. the BC government′s land registry body).</p></sec></sec><sec><title>Two‐dimensional (Bare Land) Condominiums</title><p>The Condominium Act in British Columbia provides for the creation of bare land strata. Boundaries are on a horizontal plane and are similar to conventional land subdivisions.</p><p>Because regulations allow an “average” density algorithm, bare land strata subdivisions provide added flexibility to the developer. The subdivision approving officer may approve a strata plan containing lots which are smaller than normally permitted, as long as the average lot (i.e. the area of land in the strata plan divided by the number of strata lots) is not less than the minimum lot size.</p><p>The bare land strata lot system has been used most frequently for resort communities, high density housing, and low density housing developments that include controlled common areas. For example, an island′s waterfront area may be developed with residential strata lots and the interior common properties reserved for recreational use, roads, water collection, and sewage treatment systems.</p></sec><sec><title>Three‐dimensional (Typical) Condominiums</title><p>The typical condominium may perhaps be described as “land without earth”. For example, the subdivision is not limited to land. It also refers to part of a building wherein cubes of airspace are bounded by horizontal and vertical boundaries.</p><p>In British Columbia, the common boundaries of strata lots in multi‐unit buildings are typically the centres of the floors, walls and ceilings. Title to this cubical airspace is linked to certain land and other common property.</p><p>Legislation in British Columbia allows a developer the option of creating a “phased strata plan”. Phasing provides flexibility in developing units according to the market absorption rate. It also opens the market to a greater number of developers; particularly to those who do not have sufficient resources to undertake the entire development of a large project at one time.</p><p>Phased strata plans also permit amenities to be shared among more units.</p></sec><sec><title>Freehold versus Leasehold Condominiums</title><p>Several North American jurisdictions allow for the creation of leasehold condominiums. This option enables the unit owner to have an undivided interest in a leasehold on a fee simple ownership basis (i.e. together all strata unit owners own the building(s) and the ground lease).</p><p>Land acquisition is a major project development cost. Therefore, the developer who leases rather than buys land should be able to market condominiums at more competitive prices, or should achieve a greater profit margin per unit.</p><p>In British Columbia, leasehold strata plans are only allowed on land registered in the name of the Crown or some other public authority. Further, the Registrar of Titles will not accept an application for deposit of a leasehold strata plan unless the remaining term of the ground lease is at least 50 years.</p><p>On termination of all strata lot leases, the strata council (elected representatives of all condominium unit owners) distribute the assets of the strata corporation (each unit owner automatically becomes a member of the strata corporation) to the former owners.</p><p>On destruction of the buildings, all strata lot leases are considered to be terminated and the Crown purchases the lessee′s interest in the strata lot. The purchase price is based either on a prearranged schedule or on the fair market value of the lessee′s interest calculated as if the lease had not expired.</p></sec><sec><title>Investor Protection and Owner‐Developer Responsibilities</title><p>The Condominium Act (1990) of British Columbia attempts to provide a careful “balance between the interests of developers and purchasers of condominiums”. The act also attempts to “balance the interests of individual owners and the strata corporation of which the owners are members”.</p><p>In general terms, the disclosure requirements outlined in British Columbia′s legislation are very good.</p><p>To advise clients properly, the appraiser must be aware of the owner‐developer′s responsibilities as well as the level of protection provided to investors.</p><p>British Columbia′s legislation provides that no developer shall offer a strata lot for sale or lease before a prospectus is filed with the Superintendent of Real Estate. The prospectus is to contain a full and true disclosure for the strata lot. Developers may, however, enter into contracts to pre‐sell or lease strata lots if the deposits received from purchasers are held in trust until the strata plan is filed in the Land Title Office and the units can be occupied[<xref ref-type="fn" rid="f1">1</xref>].</p><p>A prospectus will not be accepted by the superintendent unless the developer confirms that the purchaser has secured the title free and clear of any mortgage, lien or other encumbrance[<xref ref-type="fn" rid="f2">2</xref>]. The owner‐developer must also disclose to the purchaser the number of residential units intended for lease[<xref ref-type="fn" rid="f3">3</xref>].</p><p>With the filing of a strata plan, a strata corporation is created which consists of all owners of strata lots. The duties of the strata corporation are assumed by the owner‐developer until 60 per cent of the units are sold at which time the owners elect a strata council[<xref ref-type="fn" rid="f4">4</xref>].</p><p>The council, on behalf of the strata corporation, assumes responsibility for by‐law enforcement and for the control, management and administration of common elements and assets of the corporation.</p><p>The strata council is required to: <list list-type="bullet"><list-item><label>• </label><p>maintain full replacement value insurance on buildings and common elements;</p></list-item><list-item><label>• </label><p>maintain and repair common facilities and building exteriors;</p></list-item><list-item><label>• </label><p>establish a contingency reserve fund of not less than 5 per cent of the total annual budget.</p></list-item></list></p><p>The strata council may also register a charge against the title to any unit where the unit owner defaults on payment of common expenses[<xref ref-type="fn" rid="f5">5</xref>].</p><p>Although not without flaws, British Columbia′s legislation has generally established a sound balance among the owner‐developer, the purchaser and the strata corporation.</p><p>Legislated rights and protections in British Columbia have also provided the investment confidence necessary for the acceptance and growth of the condominium market.</p></sec><sec><title>The Development of Whistler, BC, Canada</title><p>Located in the coastal mountains of the <xref ref-type="bibr" rid="b7">province of British Columbia</xref>, Whistler is known nationally and internationally as a world‐class resort community.</p><p>A premier ski destination, Whistler offers the recreationalist two lift‐connected mountains, North America′s greatest vertical drop and a long ski season.</p><p>In recent years, Whistler has broadened its recreational focus, and today offers both summer and winter activities.</p><p><italic>Note</italic>: Whistler is an excellent example of a community whose successful growth and development largely depended on commercial accommodation made available under the provisions of British Columbia′s condominium concept and supporting legislation. It is for this reason that Whistler was selected to be used in this article, as a hypothetical working model.</p></sec><sec><title>Legislative Statutes Unique to Whistler</title><p>Key to the rapid and successful development of this world‐class resort are its location (within a two‐hour drive of Vancouver – a city of 1.5 million) and a variety of unique legislative statutes.</p><p>Whistler′s transformation from a wilderness recreation area to a world‐class summer and winter resort occurred over a period of approximately 80 years.</p><p>The community was incorporated under the Resort Municipality of Whistler Act and granted powers unique to Whistler. For example, under the Act, Whistler Council was granted authority to borrow funds for development purposes without the approval of voters.</p><p>The provincial government granted this unique authority to Whistler Council because most property owners were non‐residents who preferred to participate in the leisure activities offered at the weekend ski resort facility, but did not wish to fund the community′s development.</p><p>The development thrust in Whistler started in the late 1970s, but its greatest growth period occurred from 1981 to 1991. In this ten year period, Whistler′s permanent population more than tripled. It grew from 1,500 to 4,500. Skier days also increased – from approximately 400,000 to 1.3 million per season.</p><p>Over the last 15 years, enough development occurred at Whistler that the resort can now offer 35,000 bed units (hotel room = two bed units, one bedroom suite = three bed units, etc.) to transient visitors.</p></sec><sec><title>Incentives to Develop Condominium Accommodation</title><p>The provision of commercial accommodation at Whistler occurred primarily through the development of condominium resort projects. The dramatic increase in the rate of project creations can be largely attributed to government grants and real estate development incentives, on Crown land, which were made available to the two ski mountain companies (Whistler and Blackcomb).</p><p>Planning and development was closely controlled by the resort municipality and its wholly‐owned development corporation, Whistler Village Land Co. Ltd, which held title to development lands in the village centre.</p><p>To encourage the mountain companies to commit the large capital investment necessary to create a world‐class ski facility, they were allowed to accumulate development rights on village lands at the rate of one accommodation bed unit for every two‐skier‐day increase in lift capacity. On undertaking a development project, the mountain companies were able to purchase the project lands at 10 per cent current market value.</p><p>One of Whistler′s planning principles was to insure that all resort visitors have the option to rent accommodation in either a hotel or a residential unit in the village. The resort municipality was given this unique authority by the provincial government to ensure units were available for commercial rent by registering a restrictive covenant against title to each unit.</p><p>Although covenants vary with each phase of development in the village, typically it is required that all properties be placed in, or listed with, a rental pool.</p><p>In its more restrictive phases, “owners in a rental pool are allowed to occupy their units for only 56 days of the year (28 days during the winter and 28 days during the summer)” (<xref ref-type="bibr" rid="b4">Clark, 1992</xref>).</p></sec><sec><title>Rental Pool Categories</title><p>The “rental pool” of condominiums in Whistler can be broken down into three categories: <list list-type="order"><list-item><label>1 </label><p>townhouse complexes (typically two‐storey with up and down units);</p></list-item><list-item><label>2 </label><p>suites within three‐ and four‐storey wood‐frame, or six‐storey concrete constructed buildings;</p></list-item><list-item><label>3 </label><p>hotel rooms within high‐rise structures.</p></list-item></list></p><p><italic>Note</italic>: This article will discuss the valuation of condominium units within the six‐storey concrete structure. Such suites provide characteristics that can be related to both the hotel unit investor and the townhouse recreational user.</p><sec><title>Hotel Unit</title><p>Typical “hotel suites” in six‐storey concrete developments generally range from 55.7 to 185.8 square metres (600 to 2,000 square feet). Conventional hotel room units typically range from 23.2 to 37.2 square metres (250 to 400 square feet).</p><p>The condominium “suite” hotel is considerably less viable than a conventional hotel operation for two reasons: <list list-type="order"><list-item><label>1 </label><p>the room rate differentials for suites are not great enough to offset the greater cost of development and lower density.</p></list-item><list-item><label>2 </label><p>operating costs are considerably higher in hotel suites.</p></list-item></list></p></sec><sec><title>Townhouse Unit</title><p>Townhouse units are generally purchased by individuals who use the property to recreate, while the hotel suite unit is more investor oriented. Owner‐users of either type of unit may be severely restricted by either the local authority′s restrictive covenant or by the project′s management contract.</p></sec></sec><sec><title>Whistler Resort Association</title><p>The owners of resort land (including strata lots) in Whistler are required to be members of a unique administrative body called the Whistler Resort Association (WRA).</p><p>This association is extraordinary in several ways: <list list-type="bullet"><list-item><label>• </label><p>it is a private corporation which has a mandatory taxing authority;</p></list-item><list-item><label>• </label><p>it operates much like a strata corporation in that members control the association′s activities within established by‐laws.</p></list-item></list></p><p>The concept of a resort association arose from the need to put in place a vehicle which would help Whistler make the transition from a group of buildings into a functioning, efficient resort able to compete in world markets.</p><p>The resort association′s primary functions would be to: <list list-type="bullet"><list-item><label>• </label><p>market the resort as a single year‐round entity;</p></list-item><list-item><label>• </label><p>ensure co‐ordination;</p></list-item><list-item><label>• </label><p>operate a reservations and information system;</p></list-item><list-item><label>• </label><p>generally provide services to Whistler visitors (<xref ref-type="bibr" rid="b5">Economic Planning Group of Canada, 1984</xref>).</p></list-item></list></p></sec><sec><title>Factors Affecting Valuation of Resort Condominiums</title><p>Appraisals can be requested by either the developer or the investor. Normally, they are first required to estimate value for construction financing, and second for take‐out or permanent financing.</p><p>In the case of individual condominium units, appraisals may be required for re‐sales, mortgage financing, and/or property taxation purposes.</p></sec><sec><title>The Developer</title><p>Outlined below are the factors that motivate developers to create projects.</p><sec><title>Profit Margin</title><p>Not surprisingly, the primary incentive for a developer to undertake a resort condominium project is profit margin.</p><p>The profit margin expected in a residential condominium in nearby Vancouver may be 10‐20 per cent, while in a resort development, 20‐30 per cent (measured as a per cent of gross sales) is normally expected.</p></sec><sec><title>Competition</title><p>While it is generally true that the condominium concept has increased competition by allowing more and smaller developers to enter various markets, this does not necessarily hold true in a resort community.</p><p>Development in Whistler is dominated by two major firms. This is mainly due to factors such as front‐end costs, short building season, union job site, building material costs, and availability of a skilled labour pool.</p></sec><sec><title>Cash Flow (Condominium versus Long‐term Rental Projects)</title><p>Early infusion of equity capital from unit purchasers provides greater leverage and diversification opportunities for developers.</p><p>Smaller capital investment requirements enable developers to enter more and larger projects, spread their investment risk, and make their overall investment portfolio more secure.</p></sec><sec><title>Operating Profit</title><p>In some projects, developers are able to benefit from ongoing operating profits by arranging management contracts with the strata corporation. This enables “rental pool” or hotel project developers (with little remaining capital investment) to compete with owner‐operated resort hotels.</p></sec></sec><sec><title>The Investor</title><p>Factors that motivate investors to purchase condominiums are outlined below.</p><sec><title>Investment and Lifestyle Opportunities</title><p>BC′s condominium legislation has enabled the small investor to participate in markets from which they may have otherwise been excluded. As a result, a market for the recreational owner‐user has developed. Further, due to this market′s economies of sale (inherent in multi‐unit ownership), the recreational owner‐user has gained access to recreational facilities (swimming pools, health clubs, tennis courts).</p><p>Still for others, the ability to recreate with family members is an investment which is valued higher than earnings received from blue chip investments.</p></sec><sec><title>Convenience and Security</title><p>The resort condominium purchaser, whether investor or recreationalist, is usually not interested in purchasing property which taxes their time or energies (i.e. another lawn to mow). Most investors want a property which is secure, worry‐free and convenient.</p></sec><sec><title>Investment Advantages</title><p>By making the unit available to the rental pool, the owner shares in any operating profits (or losses). For example, tax deductions such as rental and maintenance expenses, real estate taxes, mortgage interest, and depreciation for the period the unit is in the pool can be claimed by the investor. In addition, there is a good probability that the condominium investor will enjoy capital appreciation due to inflation and mortgage paydown.</p></sec><sec><title>Security of Ownership</title><p>As opposed to other forms of investment, the investor enjoys the rights associated with fee simple ownership. The investor is taxed separately and is free to sell, mortgage, bequeath, or rent the property.</p></sec></sec><sec><title>Investor or Purchaser Profile</title><p>Appraisers can often gain information on the preferences of specific markets from successful local realtors or from developers who have surveyed potential and previous buyers.</p><p>When valuing resort condominium units owned by non‐residents and operated as part of a rental pool, it is helpful to review the lifestyle preferences of both owner‐users and renters. It is also important to understand the typical investor′s financial position with respect to tax shelter expectations, and their ability to undertake financial and capital risks.</p><sec><title>Lifestyle</title><p>The resort condominium user often expects the project or unit design and location to provide prestige, relaxation and convenience. Ideally, users expect a building orientation and design to provide appropriate sun angles, wilderness view, and convenient access to recreational facilities, shopping, entertainment and restaurants.</p></sec><sec><title>Financial and Capital Risks</title><p>Resort condominium hotels often provide low cash returns on investment. Therefore, the owner of a mortgaged unit may be required to “feed” the unit′s debt.</p><p>Likewise, the investor will be at risk for mortgages, liens or special assessments against common property. It is important, therefore, that investors understand that they cannot always rely on the unit to carry itself.</p></sec><sec><title>Tax Shelter Expectations</title><p>Tax shelters can offer either tax‐loss or cash‐flow benefits. For example, tax‐loss shelters allow investors to shelter other (i.e. non‐real estate) income, while cash‐flow shelters allow investors to shelter tax income from the real estate.</p><p>In recent years, tax‐loss shelters have been severely restricted in Canada. However, cashflow shelters continue to be of considerable benefit to the investor.</p><p>The extent of the shelter is a function of the investor′s marginal tax rate, therefore investors in higher tax brackets receive a greater benefit from the purchase of properties.</p></sec><sec><title>Financing</title><p>A resort condominium development falls into three areas of financing: <list list-type="order"><list-item><label>1 </label><p>front‐end financing;</p></list-item><list-item><label>2 </label><p>construction financing;</p></list-item><list-item><label>3 </label><p>take‐out (permanent) financing.</p></list-item></list></p><p><italic>Front‐end financing</italic>. Includes land acquisition costs and land development and starting costs such as architectural, legal and consulting fees; plus overhead, pre‐construction, marketing and contingency expenses.</p><p>Borrowing costs for front‐end financing tend to be prohibitive and undermine the economic viability of the project. Typically, the resort condominium developer in Whistler has proceeded without front‐end loans because lenders are particularly sceptical of projects requiring outside assistance.</p><p><italic>Construction financing</italic>. Virtually all lenders secure an appraisal to determine value for the construction loan. Also, the availability and cost of financing depends largely on the financial stability and demonstrated track record of the developer.</p><p>At Whistler, the development arms of the two mountain companies often acquire loan‐to‐value ratios at 75 per cent prime, plus one per cent. Smaller developers are able to obtain financing at loan‐to‐value ratios of 60‐65 per cent prime, plus one to three per cent. Most lenders require 30‐50 per cent of the units in a project to be pre‐sold before extending financing.</p><p><italic>Take‐out (permanent) financing</italic>. Generally lenders require another appraisal to be completed in advance of take‐out financing.</p><p>Depending on the length of the sell‐out period, the developer may require an interim term loan running from one to five years.</p><p>As part of their marketing strategy, developers may also want to prearrange permanent financing for individual unit buyers to arrange for permanent financing. In such cases, the lender will commit to make mortgage funds available subject only to the credit worthiness of individual investors.</p><disp-quote><p>One of the greatest difficulties in permanent and construction financing is getting lenders to appraise on a retail instead of a wholesale basis, thus giving the developer the amount necessary for mortgaging out (<xref ref-type="bibr" rid="b9">Romney, 1974</xref>).</p></disp-quote><p>Wholesale values are the result of a discounting process whereby net income from unit sales are capitalized over the sell‐out period.</p><p>A retail value reflects the aggregate of unit sales prices before discounting. Lenders are generally more willing to provide loans on a retail basis in competitive loan markets when the developer has a proven track record and a good percentage of pre‐sales.</p><p>Financing based on discounted value can create a substantial cash‐flow problem for the developer. For example, if financing is available on a 60 per cent loan‐to‐value ratio, and if retail values (normally reflecting cost) are discounted 20 per cent, the developer may only qualify for 48 per cent financing.</p></sec><sec><title>Property Management Contract</title><p>The strata council (for the strata corporation) may enter into contracts for the control, management, and administration of common property. Large resort condominium projects, with a majority of absentee unit owners, usually find it beneficial to engage (under contract) a professional management company to ensure their project′s smooth operation, and to undertake functions that maintain property values and provide security.</p><p>The appraiser should review both the management contract and the strata corporation′s financial statements to determine whether monthly assessments meet project operating costs, and to ensure that sufficient replacement reserves are being established for continued property maintenance. A low assessment and a small reserve may indicate the potential for large special assessments to be levied against unit owners for major repairs in the near future. Units within such projects may be less marketable. Conversely, a unit in a project with a large replacement reserve (e.g. $200,000) may sell for more than a similar unit in a project which has a minimal reserve.</p><p>Large monthly assessments may be indicative of both project features and problems: <list list-type="bullet"><list-item><label>• </label><p>some projects have a number of recreational facilities which are expensive to maintain;</p></list-item><list-item><label>• </label><p>there may be a live‐in manager whose mortgaged suite may be owned by the strata corporation with mortgage payments forming part of the monthly assessment;</p></list-item><list-item><label>• </label><p>excessive management fees may reflect “a sweetheart deal” between the owner‐developer and a related firm which holds the management contract. However, such “sweetheart deals” are discouraged by the Condominium Act which provides for the cancellation of a management contract by either the strata corporation or the management company on three months′ notice.</p></list-item></list></p></sec><sec><title>Rental Pool Agreements</title><p>A rental pool is an arrangement whereby the owners of a resort condominium project place their units at the disposal of a rental manager or rental management company, for all or a given part of the year, to rent or lease out the unit to a third party” (<xref ref-type="bibr" rid="b9">Romney, 1974</xref>).</p><p>Although rental pools generally lack the market clout of large hotels, rental management pools can offer comprehensive resort‐hotel service packages including reservation and front‐desk services, maid and linen services and various other hotel amenities.</p><p>Rental pools also distribute the pooled owners′ net revenues.</p><p>Rental management fees in Whistler are typically 40 per cent of gross room revenue. A typical breakdown of responsibilities between the rental management company and unit owners is shown in <xref ref-type="fig" rid="F_1120120401002">Table I</xref>.</p><p>Rental pool agreements should be examined to identify any restrictions placed on the unit owners.</p><p>As noted earlier, in Whistler Village, owners may be restricted to use their units for only 28 days during the winter season, and 28 days during the summer season. Owners may also be asked to provide written notification, 12 months in advance, advising which dates they plan to use their unit.</p><p>Typically, involvement in the rental pool is non‐mandatory for projects outside the village. Also, fewer owner‐use restrictions apply. There appears to be a 10‐20 per cent loss in value of similar units dependent on the nature and severity of restrictions on owner‐use.</p></sec></sec><sec><title>Syndication versus Real Estate Interests</title><p>In the United States, syndication has been described as “a private or public partnership that pools funds for the acquisition and development of real estate projects” (<xref ref-type="bibr" rid="b2">Appraisal Institute, 1992</xref>).</p><p>Since the mid‐1970s, the popularity of real estate syndications in North America has increased. Both developers and investors have become involved in syndications.</p></sec><sec><title>Project Ownership or Development Options</title><p>In Canada, the syndicator (often the developer) may choose from six different project ownership or development options: <list list-type="order"><list-item><label>1 </label><p>co‐ownership;</p></list-item><list-item><label>2 </label><p>divided ownership (condominium);</p></list-item><list-item><label>3 </label><p>corporation;</p></list-item><list-item><label>4 </label><p>trust;</p></list-item><list-item><label>5 </label><p>general partnership;</p></list-item><list-item><label>6 </label><p>limited partnership.</p></list-item></list></p><p>The two options which perhaps best lend themselves to resort condominium hotel development and acquisition are the limited partnership and the divided ownership (condominium). These options best satisfy the objectives of both the developer and the investor and may both be encountered in a single project.</p><p>For example, a property may be acquired and developed under a limited partnership and then later converted to condominium units (see <xref ref-type="fig" rid="F_1120120401003">Figure 2</xref> and <xref ref-type="fig" rid="F_1120120401004">Figure 3</xref>).</p></sec><sec><title>Benefits for the Developer and the Investor</title><p>Syndication offers the developer the ability to: <list list-type="bullet"><list-item><label>• </label><p>increase the equity base making the project more economically viable;</p></list-item><list-item><label>• </label><p>undertake more and larger projects;</p></list-item><list-item><label>• </label><p>diversify risk;</p></list-item><list-item><label>• </label><p>take greater advantage of leverage opportunities.</p></list-item></list></p><p>Syndication offers the strata lot investor: <list list-type="bullet"><list-item><label>• </label><p>opportunities for equity involvement in large‐scale projects;</p></list-item><list-item><label>• </label><p>flow‐through tax benefits from the project;</p></list-item><list-item><label>• </label><p>a passive investment which requires no material participation;</p></list-item><list-item><label>• </label><p>reasonable liquidity;</p></list-item><list-item><label>• </label><p>the opportunity for project income participation and capital appreciation.</p></list-item></list></p></sec><sec><title>Incremental Value Due to Syndication</title><p>When selecting comparable sales to estimate the pricing or value of investment units (or strata), it is important for the appraiser to recognize the potential for abnormal returns as a result of syndication.</p><p>The appraiser, therefore, needs to segregate any contributory increments due to items such as investor‐specific tax benefits, management services, special financing, or guarantees of occupancy, cash flow or income (<xref ref-type="bibr" rid="b1">Appraisal Institute, 1991</xref>).</p><p>If, as is often the case, such non‐real estate interests are difficult to isolate and evaluate, the appraiser should limit value considerations to comparable sales which reflect the same interests as those being appraised. This process is generally less difficult to apply to condominium units because the appraiser is valuing a fee simple interest in the unit and an interest in the common property.</p><p>However, when valuing partnership interests, the appraiser normally finds that information is more difficult to obtain. Therefore, the various realty and non‐realty interests may be considerably more difficult to evaluate.</p></sec><sec><title>Valuation of Resort Condominiums</title><p>Resort condominiums may be valued by applying the three traditional valuation approaches: cost; direct comparison; income.</p><p>Selecting the most appropriate approach and technique to be applied, flows from a review of “highest and best use” and the availability of reliable market information.</p></sec><sec><title>Cost Approach</title><p>Appraisers are aware that the cost approach is predicated on the principle of substitution. “This principle affirms that no prudent buyer would pay more for a property than the cost to acquire a similar site and construct improvements of equal desirability, and utility without undue delay” (<xref ref-type="bibr" rid="b2">Appraisal Institute, 1992</xref>).</p><p>Replacement cost derived values were long taken to represent the upper limit of the market. While this may hold true in the troughs of market cycles, it is profit incentive beyond a contractor′s “normal profit” which drives the developer to undertake building projects. As mentioned earlier, resort condominium project developers generally expect to enjoy a 20‐30 per cent profit margin.</p><sec><title>Condominium Project – Replacement Cost</title><p>It may be necessary to apply the replacement cost method under the following two situations: <list list-type="order"><list-item><label>1 </label><p>An accurate estimate of the replacement cost is critical when determining the economic feasibility of a proposed project. Understated replacement costs for a feasibility study would at best reduce the developer′s profit margin and at worst lead to the collapse of the project. Overstated replacement costs could result in the developer foregoing an excellent investment opportunity because the feasibility study would not show an adequate return on investment.</p></list-item><list-item><label>2 </label><p>A cost approach may also be very useful when separating the values of personal property (furnishings, fixtures and equipment), land, and buildings from the total property value determined using another method. Such values are of course necessary for income and property taxation.</p></list-item></list></p><p>The complexity of many modern resort condominium hotels can make accurate cost estimation difficult. For example, projects may include various recreational and conference facilities, and feature unique construction characteristics, art work and varying amounts of furnishings and equipment (<xref ref-type="bibr" rid="b3">Cahill and Mitroka, 1992</xref>).</p><p>When valuing newer projects in Whistler, the appraiser usually estimates replacement cost using data from three sources: <list list-type="order"><list-item><label>1 </label><p>the developer′s construction budget or actual cost;</p></list-item><list-item><label>2 </label><p>comparable cost data from similar projects;</p></list-item><list-item><label>3 </label><p>published data from cost‐estimating services (e.g. <xref ref-type="bibr" rid="b6">Marshall Valuation Services</xref>).</p></list-item></list></p><p>The developer′s budget or “as‐built” costs are excellent information sources because they normally reflect the project team′s (i.e. architect, engineer, etc.) intimate knowledge of the specific project. However, the appraiser should review this same data to ensure costs are typical and do not reflect any special or non‐arm′s length transactions.</p><p>A summary of the cost breakdown of a hypothetical resort condominium hotel project in Whistler is provided in <xref ref-type="fig" rid="F_1120120401005">Table II</xref>.</p><p>Comparable cost data for similar projects can be a reliable information source for estimating replacement cost, but there can be two problems. First, such data is difficult to obtain, and second, even if available, the appraiser must be careful to adjust for differences in this type of complex project because they are never identical (i.e. in terms of quality, layout, or design).</p><p>A cost‐estimating service such as the <xref ref-type="bibr" rid="b6">Marshall Valuation Service</xref> can also provide a reasonable estimate of replacement cost particularly if the project does not include extensive furnishings and equipment, and recreational facilities. However this published cost data does not readily allow the appraiser to break out the project′s hard and soft costs which may be necessary if an after‐tax cash‐flow analysis is required.</p><p>A demonstration of the <xref ref-type="bibr" rid="b6">Marshall Valuation Service</xref> for a Whistler resort condominium project is shown in <xref ref-type="fig" rid="F_1120120401006">Table III</xref>.</p></sec></sec><sec><title>Individual Unit – Replacement Cost</title><p>The cost approach has little if any merit when used to value an individual condominium unit.</p><p>As was stated earlier, the replacement cost method is based on the principle of substitution. A potential unit purchaser does not have the normal option of purchasing an alternate cube of air and creating part of a building within it. Nor are there many market sales of “land without earth”. The appraiser would therefore, find it difficult to estimate accurately a land value to add to the fictitious building component value.</p></sec><sec><title>Direct Comparison Approach</title><p>When using the direct comparison approach, the appraiser can model market behaviour by comparing the property being valued to similar properties that have recently sold.</p><p>After adjusting the sales prices for characteristics which are dissimilar to the subject, the appraiser estimates market value from the adjusted sales prices. This approach produces a very reliable valuation, but only when a reasonable number of similar sales are available for comparison.</p><p>In the resort condominium market, the direct comparison approach is most useful when valuing individual strata lots.</p><p>When considering the basic elements of comparison fundamental to this approach (e.g. time, location, etc.), the appraiser should be aware of the following factors peculiar to condominiums: <list list-type="bullet"><list-item><label>• </label><p>For comparison purposes, the appraiser should consider only actual livable areas exclusive of balconies, decks, and extra storage areas. Strata plans may include these areas within the unit entitlement or show them as separate limited common property.</p></list-item><list-item><label>• </label><p>A strata lot′s parking space (whether underground or a separate garage or carport), may be assigned to the strata unit as limited common property. In some cases, parking may only be available on a rental basis.</p></list-item><list-item><label>• </label><p>When determining the bundle of rights being appraised, the appraiser must ascertain whether the land is held under freehold or leasehold.</p></list-item><list-item><label>• </label><p>Utilities, in some cases, may be metered separately to the unit or paid out of the monthly assessment fees for the entire complex.</p></list-item><list-item><label>• </label><p>The appraiser should review the adequacy of the operating budget. Although there is a provision in the Condominium Act to make owner‐developers pay any shortfall in the first year′s operation, developers may attempt to hold maintenance fees down as part of their marketing strategy.</p></list-item><list-item><label>• </label><p>Replacement reserves, especially for older projects, should be reviewed to ensure deferred maintenance will not result in extreme special assessments in the near future.</p></list-item><list-item><label>• </label><p>When comparing market information between complexes and locations, it is important not to generalize. Neighbouring complexes can have significantly different unit values due to architectural design, price and unit mix; as well as lifestyle controls through by‐laws adopted by different strata corporations.</p></list-item><list-item><label>• </label><p>Views are always important, especially in high‐rise complexes. Projects should be laid out so that the largest and most well configured units have the best views. For example, a $100,000 unit may achieve a $25,000 premium for a wilderness view, but the premium for the same view on a $200,000 unit may be $50,000 (<xref ref-type="bibr" rid="b11">Schmidt, 1988</xref>).</p></list-item></list></p><p>Adjustments may be estimated by using traditional appraisal methods such as: the Paired Sale Analysis (PAR); statistical techniques like the Multiple Regression Analysis (MRA); the Adaptive Estimation Procedure (AEP).</p><sec><title>Paired Sales Analysis</title><p>When using the paired sales analysis, two or more sales (which theoretically have all but one similar characteristic) are compared to determine the quantum adjustment for the dissimilar characteristic. Although sound in theory, this method is sometimes impractical because such market evidence rarely exists. Also, it can be difficult to isolate the target variable, due to the presence of other market factors.</p></sec><sec><title>Multiple Regression Analysis</title><p>Given sufficient sales, statistical procedures like multiple regression analysis may be used to isolate and test the significance of dependent variables (e.g. building size) on an independent variable (e.g. market value).</p></sec><sec><title>Adaptive Estimation Procedure</title><p>Equally useful is the adaptive estimation procedure (or feedback). This appraisal process, adapted from the engineering sciences, is used to analyse individual sales in order to estimate adjustment amounts.</p><p>Statistical valuation models built around the principles of the direct comparison approach can be very effective when valuing resort condominiums. Each condominium complex can be defined as a variable to capture its unique location, common areas and other features.</p><p>A basic model (formula) is: <disp-formula-group><disp-formula>MV = b<sub>0</sub> + (b<sub>1</sub> × SQFT × QUAL) + (b<sub>2</sub> × GARSQFT) + (b<sub>3</sub> × PATSQFT) +</disp-formula><disp-formula>(b<sub>4</sub> × AGE) + (b<sub>5</sub> × COMPLEX<sub>1</sub>) + (b<sub>6</sub> × COMPLEX<sub>2</sub>) + ... + (b<sub>p</sub> × COMPLEX<sub>n</sub>)</disp-formula><disp-formula>where MV = market value</disp-formula><disp-formula>SQFT = living area</disp-formula><disp-formula>QUAL = construction quality</disp-formula><disp-formula>GARSQFT = garage area</disp-formula><disp-formula>PATSQFT = patio area</disp-formula><disp-formula>AGE = building age</disp-formula><disp-formula>COMPLEX<sub>1</sub> ,..., COMPLEX<sub>n</sub>, are binary variables for each complex or group of similar complexes.</disp-formula></disp-formula-group></p><p>The coefficients for these variables will reflect their relative location, construction quality, and common‐area attributes (<xref ref-type="bibr" rid="b8">Real Estate Division, 1992</xref>).</p><p>Depending on the simplicity of the model the required number of sales normally ranges from 20 to 50.</p></sec></sec><sec><title>Income (Condominium Development) Approach</title><p>The income approach is particularly useful when valuing an entire resort condominium project. It should also be considered when valuing individual units.</p><p>The following two sub‐sections discuss the market study and valuation of the same 85 unit project described in <xref ref-type="fig" rid="F_1120120401005">Table II</xref>. The sub‐section titled Resort Condominium Project briefly examines retail pricing of condominium units and absorption rates, and then provides examples of an entire project valuation under each of the following three sets of assumed market conditions: <list list-type="order"><list-item><label>1 </label><p>A “hot” market with a minimal absorption period (income from unit sales only).</p></list-item><list-item><label>2 </label><p>A market experiencing falling prices and absorption levels (discounted cash flow (DCF) analysis with income from both continuing unit sales and diminishing “rental pool” operation).</p></list-item><list-item><label>3 </label><p>A market with falling prices and absorption levels (similar to the DCF analysis above, but the developer opts to operate all remaining units in a rental pool and defers sell‐out until the market recovers).</p></list-item></list></p><p>The sub‐section titled Resort Condominium Unit briefly reviews and provides an example of an income approach valuation on one unit in the resort condominium complex.</p><sec><title>Resort Condominium Project</title><p>As part of a feasibility study, the developer′s market strategy, or for take‐out financing, the appraiser may be required to establish retail prices and absorption rates for the strata units within a resort condominium complex.</p><p>For the appraiser who is determining retail prices by the direct comparison approach, it is important to also be prepared to respond to the developer′s expectations with realistic market evidence.</p><p><italic>Market study</italic>. Before estimating the final value of a resort condominium project, the appraiser needs to study and understand the local market carefully (i.e. the general market climate within the major population centre which spawns the majority of investors), and the international market which feeds commercial accommodation demands.</p><p>The appraiser, as part of an assignment, may also be requested to recommend whether prevailing market conditions support selling the units immediately, or operating the project on a short‐term rental basis (one of the significant advantages of the condominium).</p><p><italic>Note</italic>: A well‐researched market study is paramount to a proper value conclusion. A good reference for hotel market studies is <xref ref-type="bibr" rid="b10">Rushmore′s (1990)</xref> book.</p><p><italic>Retail pricing</italic>. When applying the cost (condominium development) approach the appraiser first estimates the most likely retail sales price of the strata lots, the development period (in a feasibility study only), and the likely absorption rate.</p><p>The developer′s approach to the retail pricing of units may be simply to determine the unit′s construction, land, and operating costs, and the unit′s proportionate share of the cost of resort amenities and facilities. To this the developer adds an arbitrary profit percentage figure to arrive at the “sticker” price.</p><p>This base may be arbitrarily adjusted for various units depending on their relative location, view or proximity to recreational facilities and other amenities. For example, a ski resort complex which offers ski‐in and ski‐out access will generate higher prices than a complex without similar access.</p><p>The appraiser should temper such cost‐based pricing with actual sales experienced from the local market. Cost does not necessarily reflect value and subjective adjustments may result in both over‐ and under‐pricing certain units. Under‐priced units may sell quickly, but the consequence is a reduced profit margin, extended sellout period and, of course, a lower value.</p><p><italic>Absorption rates</italic>. When estimating the absorption rate, which is based on the market study, the appraiser should study the history of new stock developments and associated sales volumes in the local market. The appraiser should also study the larger economic and demographic factors affecting the local market.</p></sec><sec><title>Whistler Resort Example</title><p>The Whistler resort example satisfies two recreational market criteria: <list list-type="order"><list-item><label>1 </label><p>The resort is within a two‐hour drive of a major population centre – Vancouver.</p></list-item><list-item><label>2 </label><p>The resort is an “anchored recreational” resort. Whistler′s international reputation and local infrastructure, allows it not to be greatly influenced by local markets. <list list-type="bullet"><list-item><label>• </label><p><italic>Demand analysis</italic>: Generally, developers and realtors in Whistler expect that demand for property will directly relate to tourist growth experienced each year. <xref ref-type="fig" rid="F_1120120401007">Figure 4</xref> demonstrates a very healthy tourist (skier) visit growth rate. <xref ref-type="fig" rid="F_1120120401008">Figure 5</xref> indicates that the highest incidence of vacation or second home ownership is highest in the 45‐64 age group.</p><p>Given that the largest demographic population bulge in Canada′s history (i.e. baby boomers) are moving into the 45‐64 age group, and that Whistler continues to grow into a four‐season resort, it appears that demand for condominium units will remain strong.</p></list-item><list-item><label>• </label><p><italic>Supply analysis</italic>: On the supply side, Whistler resort currently offers 3,142 guest and hotel rooms with a further 4,458 rooms planned over a ten year build‐out period. However real estate prices and new construction have fallen off with the onset of the 1991 recession.</p></list-item></list></p></list-item></list></p><p><xref ref-type="fig" rid="F_1120120401009">Table IV</xref>, <xref ref-type="fig" rid="F_1120120401010">Table V</xref> and <xref ref-type="fig" rid="F_1120120401011">Table VI</xref> show the impact of various market assumptions on the final value conclusion. <xref ref-type="fig" rid="F_1120120401009">Table IV</xref> illustrates the valuation of a hypothetical 85 unit project in a “hot” market. All holding and marketing costs as well as an allowance for the developer′s profit are deducted from the aggregate retail prices to arrive at a value for the total project. <xref ref-type="fig" rid="F_1120120401010">Table V</xref> shows a variation of this procedure. In this case, 30 per cent or 25 units which were pre‐sold are completed as project construction is finished.</p><p>However, since construction began, prices in the high‐end market have fallen off 25 per cent and the absorption rate has slowed. In this situation, the owner‐developer decides to operate the remaining units in a rental pool while continuing to market at the reduced price levels.</p><p>In <xref ref-type="fig" rid="F_1120120401011">Table VI</xref> the same market conditions exist as in <xref ref-type="fig" rid="F_1120120401010">Table V</xref>, but the owner‐developer decides to operate all remaining units in a rental pool and defers selling until the market recovers in late 1993. <xref ref-type="fig" rid="F_1120120401011">Table VI</xref> is probably the most realistic projection because while Whistler relies on the major population centre of Vancouver for approximately 70 per cent of unit sales, it draws only 24 per cent of its hotel guests from its home province during the high winter season (see <xref ref-type="fig" rid="F_1120120401012">Table VII</xref>).</p><p>As a result, the rental pool operation is relatively recession‐proof. This is evidenced in <xref ref-type="fig" rid="F_1120120401007">Figure 4</xref> which shows a close correlation between occupancy levels and skier visits.</p><p>The following three examples communicate market knowledge and assumptions that have a dramatic effect on the final estimate of value: <list list-type="order"><list-item><label>1 </label><p><xref ref-type="fig" rid="F_1120120401009">Table IV</xref> – hot market $21,585,000.</p></list-item><list-item><label>2 </label><p><xref ref-type="fig" rid="F_1120120401010">Table V</xref> – falling prices/absorption levels $15,710,000.</p></list-item><list-item><label>3 </label><p><xref ref-type="fig" rid="F_1120120401011">Table VI</xref> – deferred sellout/rental pool operation $18,480,000.</p></list-item></list></p></sec><sec><title>Resort Condominium Unit</title><p>One of the marketing features of a resort condominium unit is that it can generate revenue by participating in a rental pool.</p><p><xref ref-type="fig" rid="F_1120120401013">Table VIII</xref> details information on the Income Approach when applied to a 111.5 square metre (1,200 square foot) unit in the high‐end resort complex previously referred to in this article. The very low overall capitalization rate (OCR) indicates that the units were not purchased for the return‐on‐investment provided by rental income.</p><p>This example also demonstrates that the income approach is generally not used when valuing this type of unit. Because the OCRs are so low, resulting value estimates are very sensitive to even small changes. As noted, a decrease of 0.5 per cent in the OCR changes the value estimate by 33 per cent.</p><p>From this example, it becomes apparent to investors that they should not purchase the most expensive condominium (typically high‐rise units). The rental income of the units is less likely to cover expenses. Developers, therefore, are moving away from high‐rise projects which typically achieve 80 per cent efficiency ratios to build smaller units in townhouse complexes which can achieve 100 per cent efficiency ratios. The current target is to provide a unit with two bedrooms for $250,000 or less. These units are capable of generating only marginally less rental income.</p></sec></sec><sec><title>Conclusion</title><p>The condominium concept is well‐established in the Canadian real estate marketplace. As a form of legal ownership, condominiums provide investors with a secure fee‐simple bundle of rights and various forms of protection.</p><p>For the developing resort municipality of Whistler, condominiums were an important vehicle in providing commercial rental accommodation to tourists. Other and more recent applications of the concept (e.g. retirement villages) are evident throughout British Columbia and the rest of Canada.</p><p>British Columbia′s Condominium Act has created a reasonably balanced framework which promotes the necessary market confidence for both development of and investment in condominiums. Appraisers are called on to value entire condominium projects as well as individual units within projects.</p><p>Project valuations are normally required in the pre‐development and various completion stages for feasibility and financing purposes. Individual unit valuations are needed for a number of reasons including re‐sale, mortgage financing, and property taxation. When valuing either entire projects or individual units, appraisers must always be cognizant of the factors that influence value and must reflect them in the valuation.</p><p>Appraisers will note: <list list-type="bullet"><list-item><label>• </label><p>motivating factors which lead developers to create and investors to purchase condominiums;</p></list-item><list-item><label>• </label><p>the impact of retail versus discount prices on financing;</p></list-item><list-item><label>• </label><p>“sweetheart” management contracts, restrictive covenants and rental pool agreements which severely restrict the owner′s use may significantly detract from value.</p></list-item></list></p><p>Selecting the most appropriate valuation method means undertaking a careful review of “highest and best use” and ensuring that reliable market data is available. For example: <list list-type="bullet"><list-item><label>• </label><p>The cost approach – provides a good benchmark against which value conclusions from other approaches for entire project valuation can be tested. However it is not a practical approach for individual unit valuation.</p></list-item><list-item><label>• </label><p>The direct comparison approach – usually provides the most reliable valuation for individual units, provided recent sales of similar properties are available. This approach, however, is less reliable when valuing entire projects due to project complexities and differences in location, quality, design and related facilities.</p></list-item><list-item><label>• </label><p>The income approach – is generally the preferred method for valuing an entire project because it best reflects “the present worth of future benefits” to be received from rental operation and/or unit sales.</p></list-item></list></p><p>A reliable income valuation is dependent on a comprehensive market study – especially when conducting a discounted cash flow analysis.</p><p>Today, greater reliance is being placed on computers for statistical, financial and cost analysis support in the appraisal process. Furthermore, while software programs facilitate valuation tasks, understanding each approach′s underlying assumptions and related market conditions rest with the appraiser. Final value conclusions must, therefore, remain with the appraiser rather than the computer.</p></sec><sec><fig position="float" id="F_1120120401001"><label><bold>Figure 1<x>. </x></bold></label><caption><p>Whistler, Canada</p></caption><graphic xlink:href="1120120401001.tif"></graphic></fig></sec><sec><fig position="float" id="F_1120120401002"><label><bold>Table I<x>. </x></bold></label><caption><p>Rental Agreement</p></caption><graphic xlink:href="1120120401002.tif"></graphic></fig></sec><sec><fig position="float" id="F_1120120401003"><label><bold>Figure 2<x>. </x></bold></label><caption><p>Limited Partnership Syndicate</p></caption><graphic xlink:href="1120120401003.tif"></graphic><p content-type="legend"><italic>Source</italic>: Real Estate Division, University of British Columbia, British Columbia, Canada</p></fig></sec><sec><fig position="float" id="F_1120120401004"><label><bold>Figure 3<x>. </x></bold></label><caption><p>Dividend Ownership (Condominium)</p></caption><graphic xlink:href="1120120401004.tif"></graphic><p content-type="legend"><italic>Source</italic>: Real Estate Division, University of British Columbia, British Columbia, Canada</p></fig></sec><sec><fig position="float" id="F_1120120401005"><label><bold>Table II<x>. </x></bold></label><caption><p>Resort Condominium Complex Cost Breakdown</p></caption><graphic xlink:href="1120120401005.tif"></graphic></fig></sec><sec><fig position="float" id="F_1120120401006"><label><bold>Table III<x>. </x></bold></label><caption><p>A Demonstration of Marshall Valuation Service for a Whistler Resort Condominium Project</p></caption><graphic xlink:href="1120120401006.tif"></graphic><p content-type="legend"><italic>Notes:</italic><list list-type="simple"><list-item><p>Cost data by Marshall Valuation Services</p></list-item><list-item><p>Owner name: Whistler Resort Project</p></list-item><list-item><p>Address: Whistler</p></list-item><list-item><p>City, postal code: Canada</p></list-item><list-item><p>Occupancy: Apartment</p></list-item><list-item><p>Floor area: 118,159 square feet</p></list-item><list-item><p>Class: Reinforced concrete frame</p></list-item><list-item><p>Cost rank: High</p></list-item><list-item><p>Cost as of: 1/92</p></list-item><list-item><p>Heating and cooling: Electric 100 per cent</p></list-item><list-item><p>Other features: Elevators serving 179,956 square feet</p></list-item><list-item><p>Number od stories: 6.0</p></list-item><list-item><p>Average storey height: 10.0 feet</p></list-item><list-item><p>Effective age: 0 years</p></list-item></list></p></fig></sec><sec><fig position="float" id="F_1120120401007"><label><bold>Figure 4<x>. </x></bold></label><caption><p>Available, Annual Room Nights and Skier Days</p></caption><graphic xlink:href="1120120401007.tif"></graphic></fig></sec><sec><fig position="float" id="F_1120120401008"><label><bold>Figure 5<x>. </x></bold></label><caption><p>Incidence of Vacation Home Ownership by Age Group, Canada, 1990</p></caption><graphic xlink:href="1120120401008.tif"></graphic><p content-type="legend"><italic>Source:</italic> Statistics Canada</p></fig></sec><sec><fig position="float" id="F_1120120401009"><label><bold>Table IV<x>. </x></bold></label><caption><p>Project Development Approach “Hot” Market</p></caption><graphic xlink:href="1120120401009.tif"></graphic></fig></sec><sec><fig position="float" id="F_1120120401010"><label><bold>Table V<x>. </x></bold></label><caption><p>Discounted Cash Flow Analysis Falling Prices and Absorption Levels</p></caption><graphic xlink:href="1120120401010.tif"></graphic></fig></sec><sec><fig position="float" id="F_1120120401011"><label><bold>Table VI<x>. </x></bold></label><caption><p>Discounted Cash Flow Analysis, Rental Pool Operation and Deferred Sell‐out</p></caption><graphic xlink:href="1120120401011.tif"></graphic></fig></sec><sec><fig position="float" id="F_1120120401012"><label><bold>Table VII<x>. </x></bold></label><caption><p>Hotel Guest Origin Source: Whistler Resort Association, Department of Market Research</p></caption><graphic xlink:href="1120120401012.tif"></graphic><p content-type="legend"><italic>Source:</italic> Whistler Resort Association, Department of Market Research</p></fig></sec><sec><fig position="float" id="F_1120120401013"><label><bold>Table VIII<x>. </x></bold></label><caption><p>Income Approach – Single Unit, Assuming No Owner Use</p></caption><graphic xlink:href="1120120401013.tif"></graphic></fig></sec></body><back><fn-group><title>Notes</title><fn id="f1"><label>1<x>. </x></label><p>Real Estate Act, RSBC, Section 50.</p></fn><fn id="f2"><label>2<x>. </x></label><p>Real Estate Act, RSBC, Section 57.</p></fn><fn id="f3"><label>3<x>. </x></label><p>Condominium Act, RSBC, Section 31.</p></fn><fn id="f4"><label>4<x>. </x></label><p>Condominium Act, RSBC, Sections 118, 123.</p></fn><fn id="f5"><label>5<x>. </x></label><p>Condominium Act, RSBC, Sections 35, 37, 116.</p></fn></fn-group><ref-list><title>References</title><ref id="b1"><mixed-citation><person-group person-group-type="author"><string-name>Appraisal Institute</string-name></person-group> (<year>1991</year>), <source><italic>Standards of Professional Appraisal Practice</italic></source>, <publisher-name>Guide Note One Appraisal Institute (US)</publisher-name>, <publisher-loc>Chicago, IL</publisher-loc>.</mixed-citation></ref><ref id="b2"><mixed-citation><person-group person-group-type="author"><string-name>Appraisal Institute</string-name></person-group> (<year>1992</year>), <source><italic>The Appraisal of Real Estate</italic></source>, <edition>10th</edition> ed., <publisher-name>Appraisal Institute (US)</publisher-name>, <publisher-loc>Chicago, IL</publisher-loc>, p. <fpage>132</fpage>.</mixed-citation></ref><ref id="b3"><mixed-citation><person-group person-group-type="author"><string-name><surname>Cahill</surname>, <given-names>M.</given-names></string-name></person-group> and <person-group person-group-type="author"><string-name><surname>Mitroka</surname>, <given-names>M.M.</given-names></string-name></person-group> (<year>1992</year>), Estimating Hotel Replacement Cost, <source><italic>The Appraisal Journal</italic></source>, <issue>July</issue>.</mixed-citation></ref><ref id="b4"><mixed-citation><person-group person-group-type="author"><string-name><surname>Clark</surname>, <given-names>P.A.</given-names></string-name></person-group> (<year>1992</year>), “<article-title><italic>Second Home Ownership: The Case of Whistler Resort, British Columbia</italic></article-title>”, unpublished MA Thesis, <publisher-name>Simon Fraser University</publisher-name>.</mixed-citation></ref><ref id="b5"><mixed-citation><person-group person-group-type="author"><string-name>Economic Planning Group of Canada</string-name></person-group> (<year>1984</year>), <source><italic>Whistler – Development of a Resort</italic></source>, <issue>October</issue> <year>1984</year>.</mixed-citation></ref><ref id="b6"><mixed-citation><person-group person-group-type="author"><string-name>Marshall Valuation Services</string-name></person-group>, Marshall and Swift, <publisher-loc>Los Angeles</publisher-loc>, Looseleaf, Monthly.</mixed-citation></ref><ref id="b7"><mixed-citation><person-group person-group-type="author"><string-name><surname>Province of British Columbia</surname>, <given-names>Ministry o</given-names><given-names>f Finance & Corporate Relations</given-names></string-name></person-group> (<year>1990</year>), <source><italic>Discussion Paper – Amendments to the Condominium Act</italic></source>, <issue>October</issue> <year>1990</year>.</mixed-citation></ref><ref id="b8"><mixed-citation><person-group person-group-type="author"><string-name>Real Estate Division</string-name></person-group> (<year>1992</year>), <source><italic>Real Property Assessment – Year Two</italic></source>, Urban Land Economics Diploma Program, <publisher-name>University of British Columbia</publisher-name>, <publisher-loc>Vancouver</publisher-loc>, Chapters 18‐20.</mixed-citation></ref><ref id="b9"><mixed-citation><person-group person-group-type="author"><string-name><surname>Romney</surname>, <given-names>K.B.</given-names></string-name></person-group> (<year>1974</year>), <source><italic>Condominium Development Guide</italic></source>, <publisher-name>Warren, Gorham and Lamont</publisher-name>, <publisher-loc>Boston, MA</publisher-loc>, pp. <fpage>7</fpage><x>‐</x><lpage>21</lpage>.</mixed-citation></ref><ref id="b10"><mixed-citation><person-group person-group-type="author"><string-name><surname>Rushmore</surname>, <given-names>S.</given-names></string-name></person-group> (<year>1990</year>), <source><italic>The Computerized Income Approach to Hotel‐Motel Market Studies and Valuations</italic></source>, <publisher-name>Appraisal Institute (USA)</publisher-name>, <publisher-loc>Chicago, IL</publisher-loc>.</mixed-citation></ref><ref id="b11"><mixed-citation><person-group person-group-type="author"><string-name><surname>Schmidt</surname>, <given-names>J.H.</given-names></string-name></person-group> (<year>1988</year>), “<article-title><italic>Reviewing a Condominium Appraisal Report</italic></article-title>”, <source><italic>Appraisal Review & Mortgage Underwriting Journal</italic></source>, <issue>Summer</issue>.</mixed-citation></ref></ref-list></back></article></istex:document></istex:metadataXml><mods version="3.6"><titleInfo lang="en"><title>The Valuation of Resort Condominium Projects and Individual Units</title></titleInfo><titleInfo type="alternative" lang="en" contentType="CDATA"><title>The Valuation of Resort Condominium Projects and Individual Units</title></titleInfo><name type="personal"><namePart type="given">Bruce</namePart><namePart type="family">Turner</namePart><affiliation>Area Assessor with British Columbia Assessment Authority.</affiliation></name><typeOfResource>text</typeOfResource><genre type="research-article" displayLabel="research-article"></genre><originInfo><publisher>MCB UP Ltd</publisher><dateIssued encoding="w3cdtf">1994-12-01</dateIssued><copyrightDate encoding="w3cdtf">1994</copyrightDate></originInfo><language><languageTerm type="code" authority="iso639-2b">eng</languageTerm><languageTerm type="code" authority="rfc3066">en</languageTerm></language><physicalDescription><internetMediaType>text/html</internetMediaType></physicalDescription><abstract lang="en">Over the last 25 years, condominiums have come to form a significant part of the real estate market in Canada. Reviews the legal structuring of condominiums in British Columbia Canada, focusing on resort condominium properties in Whistler, British Columbia. Addresses the primary factors affecting value and finally deals with valuing these properties by the cost, direct comparison and income approaches.</abstract><subject><genre>Keywords</genre><topic>Canada</topic><topic>Discounted cash flow</topic><topic>Incentives</topic><topic>Legislation</topic><topic>Property</topic><topic>Property management</topic><topic>Valuation</topic></subject><relatedItem type="host"><titleInfo><title>Journal of Property Valuation and Investment</title></titleInfo><genre type="Journal">journal</genre><subject><genre>Emerald Subject Group</genre><topic authority="SubjectCodesPrimary" authorityURI="cat-PMBE">Property management & built environment</topic><topic authority="SubjectCodesSecondary" authorityURI="cat-REP">Real estate & property</topic><topic authority="SubjectCodesSecondary" authorityURI="cat-PVF">Property valuation & finance</topic></subject><identifier type="ISSN">0960-2712</identifier><identifier type="PublisherID">jpvi</identifier><identifier type="DOI">10.1108/jpvi</identifier><part><date>1994</date><detail type="volume"><caption>vol.</caption><number>12</number></detail><detail type="issue"><caption>no.</caption><number>4</number></detail><extent unit="pages"><start>9</start><end>36</end></extent></part></relatedItem><identifier type="istex">6A733C8C01E9E036E6D1E04701ED0BD34D57872A</identifier><identifier type="DOI">10.1108/14635789410069962</identifier><identifier type="filenameID">1120120401</identifier><identifier type="original-pdf">1120120401.pdf</identifier><identifier type="href">14635789410069962.pdf</identifier><accessCondition type="use and reproduction" contentType="copyright">© MCB UP Limited</accessCondition><recordInfo><recordContentSource>EMERALD</recordContentSource></recordInfo></mods></metadata><serie></serie></istex></record>Pour manipuler ce document sous Unix (Dilib)
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