Tag Archives: Tom Miller

The Value of Buildings – Part 2

Exchange Value Buildings have a price tag – when they’re built, occupied and sold.

Buildings are usually purpose-built. They can be built to be a church, school, apartment building, office building, restaurant, factory, hospital and so on.

And, no matter what a building is built for, there are three important considerations in the early stages that will have a big impact on the future usability and success of the building: Financing, the location and the building’s design. Each is an important consideration that, taken together, will have a huge impact on the overall success of the building. It is very difficult to have a good end result if any of these criteria are wrong.

Financing the building. Depending on the purpose of the building, the scope of the project, and whether it is intended to be owner-occupied or tenant-occupied, there are many options available to finance construction (both new and renovation projects). Since we are not experts in real estate financing, it is best to discuss financing options with real estate financial experts.

Location. Proximity to customers, transportation access, convenience, cultural and social venues are some of the important considerations, depending on the purpose of the building. Neighborhoods are also important. Because a building does not exist separately from its neighborhood, it is necessary to plan as best as possible to be in a location that will be most suitable for the purpose of the space in the long term.

Environmental and local zoning codes need to be considered. For example, if you are considering building on a Greenfield site (not previously developed) investigate the costs to develop the property, if not already equipped with utilities and other infrastructure.

For Brownfield construction (land previously built on) the property may need to have an environmental inspection prior to purchase to determine if there is any hazardous waste from previous use of the property that would have to be remediated prior to construction, or if it is a renovation of an existing building, also inspect for existing issues in the structure such as asbestos, lead-based paint, mold and other contaminants that may be required by law to remove or sequester prior to construction.

In addition to the first cost of the land, improvements (driveways, drainage and retention ponds, environmental requirements, parking, landscaping) can add up quickly and should be realistically budgeted for.

Architectural and interior design. The design of the building plays a considerable role in its cost to build or renovate, the way it integrates into the local neighborhood, the cost to operate and the futurevalue when sold.

Buildings in the US consume about 45% of the electricity produced, prodigious amounts of natural gas and water, plus construction materials and interior fixtures and furnishings. Many building owners are committed to building to more stringent energy codes and using sustainable (green) materials and furnishings, thereby reducing overall energy costs, while improving indoor air quality and occupant comfort.

While there is some debate in the construction industry about the additional costs to add these energy efficiency and sustainable products, it is generally much more cost effective to build energy efficiencies into the building from the beginning, and basically future-proof the building from excessive increases in energy costs.

If you are about to engage in construction, keep in mind that the current commercial building codes in many communities require a bare minimum of energy efficiency and other environmentally responsible building materials and techniques. There is also a growing body of evidence suggesting that energy efficient buildings retain more value than comparable, but less energy efficient, buildings.

How a building feels is an important aspect of the appeal. Buildings that are lit with natural light, incorporate social gathering areas, have good control of indoor temperatures and pleasant lighting that is task appropriate are generally more productive and occupant-friendly. Just walking into a building should give you a positive vibe of the place.

Buildings become a part of the fabric of the community. They have personalities that can be reflective of the companies and occupants inside. A building may welcome passersby to stop and chat, sitting under shade trees on comfortable benches. Or, a building may surround itself with concrete parking, minimal landscaping and other signals that are less than welcoming.

Tenant-occupied buildings

Buildings built by owners to be leased are commonly referred to as tenant-occupied buildings. These buildings are generally built to serve specific requirements, from mixed use (apartments and retail mix), retail, commercial, distribution, multi-family apartments and so forth. They pay close attention to location, and build to meet a specific price-per-square-foot lease range.

Owners are responsible for managing their properties to a certain standard, and a portion of the cost to maintain the property is often assessed on a percentage basis to all tenants based on their individual square footage.

Tenant-occupied building owners are incentivized to keep their property attractively maintained and managed, so they attract tenants within the lease range desirable for the property.

Owner-occupied buildings

Those who choose to build and occupy a building may take a different view of the value of a building. Because they will have it built to meet their needs, they may pay more attention to specifics in the architectural design, the quality (or green attributes) of materials and contents, and other performance choices (e.g. enhanced installation, geothermal or other alternate energy sources) than focusing solely on the cost to construct, especially if they plan to occupy the building for many years.

Owner-occupants may build to achieve lower energy bills, and to reduce costs of future maintenance and repair bills.  However, if the requirements mean that the building is built to rigid specifications to meet the owner-occupant’s requirements, it may make the property more difficult to sell or renovate in the future.

But, whether the building is tenant-occupied or owner-occupied the owner usually understands that the value of the building is determined by a mix of many factors, from the location, architectural design, quality of tenant, facility management and maintenance, energy efficiency, occupant comfort and the anticipated return on investment.


Next in the series we will examine the utility of a building; that is, how a building interacts with occupants, and the local neighborhood in which it exists, in:

Use Value. Buildings enhance or inhibit what happens in and around them.

Thank you for spending time with Darwin. Cheers! Tom Miller

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