05 Apr Appraising Special Purpose Properties
It is important for all SBA lenders to be familiar with the requirements related to loans involving Special Purpose Properties; including who should be engaged to appraise the business, as well as what should be included within the appraisal. A Special Purpose Property is defined in the SBA Standard Operating Procedure (SOP) 50 10 6 (pg. 363) as “a limited-market property with a unique physical design, special construction materials, or a layout that restricts its utility to the specific use for which it was built.” The following is a list that contains examples of properties (not all-inclusive) that the SBA considers Special Purpose Properties (pgs.478 – 479):
|Farms (Incl. Livestock and Dairy)
|Funeral Homes w/ Crematoriums
|Hotels, Motels, Lodging
|Nursing Homes (Incl. Assisted Living Facilities)
|Quarries (Incl. Gravel Pits)
|Theaters and Auditoriums
|Cold Storage Facilities (More than 50% of Square Footage is Refrigeration)
|Hospitals, Surgery Centers, Urgent Care Centers, and other health or medical facilities
|Service Centers (e.g. Oil and Lube, Brake, or Transmission Centers w/ Pits and In-Ground Lifts)
When the business operates from a Special Purpose Property, “the lender must obtain an independent appraisal performed by a Certified General Real Property Appraiser.” It should be noted that a Certified General Real Property Appraiser is a Real Estate Appraiser who has met specific educational requirements to appraise a Special Purpose Property.
When engaging or reviewing a Special Purpose Property appraisal, lenders must confirm that both the appraiser and the appraisal adhere to certain requirements, as discussed below:
- Ensure the appraiser has completed no less than four going concern appraisals of equivalent special use property as the property being appraised, within the last 36 months, as identified in the qualifications portion of the appraisal report.
- Confirm the appraisal will be/is USPAP Compliant.
- Ensure the appraiser plans to/has allocated separate values to Land, Building, Furniture, Fixtures, Equipment (FF&E), and Intangible Assets.
- If you receive an appraisal report, and there is no separate allocation for Land, Building, Furniture, Fixtures, Equipment (FF&E), and Intangibles, the appraiser must revise the report to include separate allocations.
- If the appraiser is unable to provide separate allocations or did not appraise FF&E and intangible assets, a Business Valuation may be required in addition to the appraisal provided.
When a Special Purpose Property, such as a gas station or car wash, is operated from a third-party leased location (i.e. ownership of the real estate is unaffiliated with the business or its owners) and real estate is not included in the transaction, a business appraiser should be engaged, as real estate appraisers cannot appraise a business sans real estate.
Feel free to contact one of our appraisers if you have any specific questions about a Special Purpose Property appraisal.