Industrials 2005

This article accompanies the updated, 2005 Baseline Map of Value for Industrial Buildings in Greater Boston. The study of the industrial market is a specialty of Eric Reenstierna Associates. The Baseline Map is useful: it allows appraisers to make adjustments to comparable sales that are at different locations. It allows an appraiser or a bank loan officer to derive a quick and relatively accurate indication of value for any one-story industrial building in the size range of 5,000 to 80,000 square feet, through the use of the map and the Baseline Model (click on "Baseline Model" at the Eric Reenstierna Associates' Web site).

The map and model provide statistical readings for trends in the Greater Boston industrial market:

- across all locations, prices roughly doubling from 1996 to 2005
- overall appreciation between 1996 and 2005 of 8.31% per year, compounded
- appreciation of only 3.08% per year from 2002 to 2005
- highest appreciation since 1996 in Route 93 North and Route 495 West
- lower appreciation at Peabody, Waltham, and Westwood on Route 128
- high values at major highway interchanges

These conclusions derive from application of a statistical method, multiple regression analysis, to several hundred sales of industrial buildings in the period from 2002 to 2005. The sales are of small and mid-sized industrial buildings. We assigned them numeric rankings for quality and condition. We expanded the geographic area covered by our study since the original study in 1996. The study's western extent is now the I-195 corridor in Worcester County. The area also is expanded north and south. Advancements in technology and data collection since the original study helped greatly in expanding the geographic range and the data analysis.

The theory behind the analysis is that the value of an industrial building results from a combination of factors and that these factors can be described by an equation. The math evolved in a 1996 study by this office. It is described in an article that followed from the study, "Industrials: the Baseline Method," published in The Appraisal Journal. The focus of the study is first to derive the value of the "baseline" building all across the map of industrial neighborhoods in Greater Boston. The baseline industrial building is an average-quality one-story, 20,000 square foot block or brick building with 15% office and 18' clear height, on a 66,667 square foot lot. Using this standard building as the basis for the map allows "apples to apples" comparison of values from one location to the next. The second focus of the study is to derive the variables for building size, land area, and building quality that explain the differences in price for the broad range of industrials. These variables are used in the equation for the Baseline Model. They are what allows the Baseline Model to predict the value of a 50,000-square-foot building with a leaky roof in Chelsea and the value of an 8,000-square-foot, fully air conditioned new building in Boxboro.

In the language of gamblers, the odds are two to one that an industrial property will sell within 15% of the value predicted by the Baseline Model. In the language of statisticians, the 68% confidence interval is a range within 15% of the predicted value. The gambler and the statistician are saying the same thing. Some would say that accuracy within 15% is not very accurate. We would say that the industrial market is imperfect and that a variation of 15% is a measure of the market's imperfection. Time and again, we see similar buildings sell at dissimilar prices. The market itself does not always provide a tight range. The Baseline Model has the advantage that it provides a measure of variation, which other forms of appraisal for the most part do not.

Appraisal using regression analysis is appraisal as science. When we make any appraisal of an industrial building, the information from the Baseline Model tells us, as appraisers, that our judgements - how much to adjust this comparable sale because it comes from five miles away, how much to deduct for the low clear height at this other comparison - are rooted in fact. The Baseline Model gives us a confidence in our appraisals of industrial properties that we could have no other way.

William T. Whiting, Jr. and Eric T. Reenstierna, MAI