"When was the last time you played the game of Monopoly? You'll recall that the object of the game is to become the wealthiest player through buying, renting and selling of property. The goal, and the difficulty, is to own all the properties in a color group, which then allows players to erect houses and eventually hotels on those properties and collect higher rents for their trouble.
The game might just as well have been called "Assemblage."
In real estate terminology, land assemblage is basically defined as acquiring two or more adjoining properties and piecing them together in some fashion to create a development. Assemblage can be done for residential or commercial land usage, depending on the purpose. The process might take place over a period of months or years and as a result, can be quite costly. It can also prove quite profitable.
One conventional test used to establish value for land assemblage is known as a market analysis, which is the overall process of determining whether the market will profitably support a particular use at a particular site.
A market analysis consists of three components: market feasibility, location/site feasibility, and financial feasibility.
Market feasibility determines the demand for the particular type of real estate in a particular region; it identifies the competitive supply of that type of real estate in that region and understands the capital market. Market data incorporates demographic, economic and lifestyle data that is mainly comprised of facts and statistics about the local population and employment conditions. The U.S. Census Bureau serves as a resource for obtaining market data in both hard copy and digital format that can be analyzed to make estimates and future projections. There are several other databases that provide market research that can be purchased for a particular project. The characteristics and makeup of the local population can strongly influence commercial real estate demand.
Locating property that can be used at its highest and best use is always the main challenge. The county assessor is the principal resource for the most comprehensive information and is often the only source of essential property data. Accessing property records in Fayette County is easily done online by going to the Web site www.fayettepva.com. GIS software programs are the core concept for the spectrum of mapping and demographic analysis. GIS can take real estate market data, manage it and map it in a variety of different ways. Google Earth is one free, Web-based product that is frequently used. The Lexington Fayette Urban County Government provides an excellent foundation for online GIS zoning maps and interactive maps with layers of data ranging from streets, streams and sewer sheds to census tracts and enterprise zones. This information can be accessed on LFUCG's Web site at www.lfucg.com/gis.
The difficulty in defining market analysis is that it is not a step- by- step linear process. Rather, it is a process that moves back and forth among several different steps to sharpen the analysis to the point where a decision can be made. All analyses must define a trade area in which properties compete and from which the supporting business, services and clientele will come to make the property a success. The combination of information about construction costs, rents, expenses and cap rates provides a financial foundation for making a decision about whether a trade area has the characteristics necessary to go forward with the consideration of a development. All real estate decisions must meet market, location/site and financial feasibility to ensure a profitable outcome.
In commercial real estate, land assemblage, acquisition and development are major components necessary for retail tenant representation and shopping center leasing. Once the real estate professional has completed a market analysis, and has identified ownership, purchase negotiations can proceed.
Negotiations in any real estate transaction can become quite complex, especially if it is an area of high demand, limited supply, or involving parcels not actively on the market. When a seller realizes that a particular piece is necessary for the assemblage to be complete, this can influence what he or she may want for the property and what a buyer may ultimately pay. All the tools that real estate professionals have available, including a market analysis, comparative market sales, appraisals, income statements and tax returns, are sometimes ignored. Therein lies the problem — depending on location and seller motivation, land value can be priced out of sight. The seller may unrealistically inflate the price of the property, thinking he or she may hit the jackpot.
And land acquisition is only the first step. Environmental assessment, zoning, subdivision land use approvals, regulatory compliance, project design, construction contracts and project management are huge expenses associated with development. In order for the project to be viable, the numbers simply must add up, and in many instances, they just don't. So what happens? Negotiations cease, the developer finds an alternative location, and the owner hopes that another buyer will be waiting in the wings, but typically that is not the case.
Real estate is cyclical, representing patterns of prices over fairly long periods of time, typically ranging from two or three years to a period of up to 20 years. Each cycle differs from previous cycles in terms of its causes, length, depth, and effect on different property types and regions. The market usually takes care of itself, and adjusts accordingly. It's all about supply, demand and being practical.
And like Monopoly, putting the right pieces of property together is the key. "