Pub. 1 2016 Issue 5

8 www.ctaahq.org 䌀吀䄀䄀 吀䠀䔀䌀伀一一䔀䌀吀䤀䌀唀吀䄀倀䄀刀吀䴀䔀一吀䄀匀匀伀䌀䤀䄀吀䤀伀一  • During the same era, “experts” covered Michelangelo’s David with wax, and then removed the wax with hydrochloric acid. e acid destroyed the statue’s original patina. Anything valuable, whether it is a piece of art or a piece of real estate, can have its value reduced or destroyed by the wrong care. One good thing about being in real estate, however, is that at least you won’t ever end up being the subject of an internet story about ruining a priceless work of art. An upgrade to a real-estate property is more likely to enhance property value than to destroy it, as long as the work is done professionally. At this point, two issues should be clear: • e real-estate values you set, like everything else, are inescapably subjective. Once a property has been built, its value is determined by the interaction of so many di erent factors that it becomes essentially impossible to come up with a single, objective measurement. Just understand that your best guess is still a guess, even if you go about the process as methodically as you can. • You still have to try. e goal is a fair price that people are willing and able to pay and that will be high enough to keep you in business. If you do a poor job of setting your price, either your business will fail or you won’t make as much money as you could have. You need to understand your market, in other words, and then you need to evaluate the commercial worth of your properties accordingly. at means ranking them as best you can. Some people evaluate the worth of a property by its beauty, starting with curb appeal. Others opt for the age of the building, or the price per square foot. Each has its shortcomings. • If you think a particular property is beautiful, other people might not agree. is is why so many properties have bland paint and carpet; at least if a building has a relatively neutral color palette, other factors — the furniture, the textiles, and the art, for example — can all be used to spice up the appearance of a building in a way that is easy to alter when styles change. • Buildings are only new for a little while. Even for new buildings, you should still consider their quality, location, and the rental rates for the area. A well- executed and well-maintained example of a mid-century modern home designed by a notable architect is going to retain its value better than something newer that was put together for the least amount of money and e ort possible. • Price per square foot can be deceptive. If a rental has a small footprint, its price per square foot is probably going to be higher than a rental with more space. A property where most of the rentals are small is likely to rank higher than a property with more generous amounts of space per apartment. at can distort the results; you think you are comparing apples to apples by looking at price per square foot, but the market for tiny apartments has a di erent demographic than the market for larger ones, so you really aren’t. Price per square foot only works if the overall square footage is approximately the same as well. Since only looking at one characteristic doesn’t work, throw out the idea of even trying for the single, subjective measurement, and work instead on the more practical (and common) idea of looking at a number of other characteristics instead. Top-quality, Class A assets generally have the following attributes, all of whichmeasure the extremes of the high-end market: • Highest cost to buy or rent • Highest price per square foot • Highest quality • Latest technology • Luxurious nishes and amenities • Modern architecture • Newest architecture • Prime location • Professional management • Tallest • Very accessible Anything that quali es for the Class A list is considered to be the best of its kind. Anything that falls short is allocated to the Class B or Class C list. Although some items on the list are objective, others are still quite subjective. You know whether a building is the tallest building in the city, and you can calculate whether it has the highest price per square foot, but how exactly do you rank those luxurious nishes and amenities, and who decides whether something has the highest quality or not? Despite these problems, you still need to do the best job you can and to be as objective as possible. Doing so has the following advantages: Property Classification | Continued from page 7 It is always less expensive to x a small problem than a large one, and so catching problems while they can still be categorized as small is a key strategy for maximizing resources instead of wasting them.