IAAO Releases Position Paper on Valuing Big-Box Entities 

October 5 - Kansas City, MO - IAAO has released the association's position paper on valuing big-box stores. The paper, "Commercial Big-Box Retail: A Guide to Market-Based Valuation," was published by the Special Committee on Big-Box Valuation, under the direction of the IAAO Research Subcommittee and IAAO Executive Board. 

The paper was released at the IAAO Annual Conference in Las Vegas and was reviewed during the program "The Research and Findings of IAAO's Big-Box Task Force." The IAAO position paper focused on the key elements that assessment officials consider when addressing the challenges of Big-Box store valuation.  
 
This analysis focuses on big-box retail stores from 50,000 to 200,000-plus square feet and provides guidance for the valuation of big-box retail properties. 
 
"Over the last several years, issues involving these properties and theories about how to value them have resulted in great debate within both the appraisal and legal communities," said IAAO President and Polk County (Iowa) Assessor Randy Ripperger, CAE. "Even though this paper concentrates on arriving at the market value of the fee simple interest of these properties, it provides guidance regardless of the specific law of a jurisdiction." 
 
This paper does not explain how to mass appraise; rather, it describes the process that will help an appraiser support a market value estimate for big-box retail properties. The theories and methodologies discussed in this paper reflect market behavior. The paper identifies recurring issues in this controversy, clarifies the fundamental concepts used in appraisal practice, and explains the methodologies developed in arriving at the appropriate value required by the jurisdiction for assessment purposes. 
 
Recent controversy and litigation surrounding big-box valuation claims that assessments are not equitable have prompted a need for this position paper. This paper provides guidance with using appraisal methodologies to derive the appropriate value required by the jurisdiction for big-box retail stores' assessments. 
 
The paper reviews the "Dark Store" theory and how it impacts appraising big-box entities. The theory suggests that occupied big-box stores should be valued as-if-vacant and available for sale or rent to a future hypothetical user rather than in the current use, which is often a functioning, occupied store. 

The paper also reviews a number of related components to how a big-box is assessed, including build-to-suit and sale-leaseback transactions; value-in-use versus value-in-exchange; functional obsolescence in improvements designed for a specific user; abandoned, vacant stores; the impact of restrictive covenants; fee simple is not unencumbered; and highest and best use of big-box properties. 

The Chair of the Special Committee on Big-Box Valuation was Paul Welcome, CAE, FRICS, ASA, RMA, Johnson County, KS, and members were: Stephen Baker, SAMA, CAE, Ramsey County, MN; Thomas W. (Tom) Hamilton, Ph.D., MAI, CCIM, CRE, FRICS, Roosevelt University, Chicago School of Real Estate and Karvel-Hamilton Real Estate Analytics; Mark T. Kenney, MAI, SRPA, MRICS, MBA, American Valuation Group, Inc.; Peter Korpacz, MAI, CRE, FRICS, Korpacz Realty Advisors, Inc.; William Shepherd, JD, CFE, Hillsborough County, FL; and Irene E. Sokoloff, CAE, MAI, CFE, Palm Beach County, FL. 

Background 
IAAO is the leading nonprofit, educational and research association for individuals in the assessment profession and others with an interest in property valuation and taxation. IAAO's mission is to promote innovation and excellence in property appraisal, assessment administration and property tax policy through professional development, education, research, and technical assistance.  IAAO currently serves more than 7,000 members worldwide