Comments on "Relationships Between the Overall Property and Its Parts, And the Three Approaches to Value" (Letter to the Editor‪)‬

In "Relationships between the Overall Property and Its Parts, and the Three Approaches to Value" (Winter 2009), Mark Pomykacz, MAI, provides a framework for breaking the overall value of what he refers to as a business asset into the value of the real estate, the value of the personal property, and the value of business intangibles. This framework is comparable to one provided in Figure 2.1 of The Appraisal of Real Estate, 13th edition (Appraisal Institute, 2008, page 30), where the going-concern value of a business enterprise is divided between tangible property (composed of personal property and real property) and intangible property of various types. At a philosophical level, I agree with these two essentially identical frameworks as applied to commercial real estate properties because I have felt for many years that most commercial properties, and especially multiple-tenant properties, are really business enterprises that may or may not include personal property, but almost always include one or more types of intangible property. However, unlike Mr. Pomykacz, I do not believe that the going-concern value can be meaningfully split into various components, including real estate, personal property, and business intangibles. The appraisal community's collective view on the partitioning of going concerns into components could potentially make a tremendous difference in how the field of real estate appraisal might evolve over the next few years and beyond. In his article, Mr. Pomykacz offers the opinion that "good appraisal practice ought to require that appraisers explicitly state their opinions as to the combination of assets typically found in the market and what combination is under appraisal, especially when the two differ" (page 68). This is a reasonable request and can be easily addressed by commercial real estate appraisers with a simple statement in an appraisal report that the appraised value is for a going-concern real estate enterprise (if this is the appraiser's opinion) and thus includes the value of real estate, the value of various intangible assets, and possibly the value of personal property when the overall property requires personal property in order to fulfill its function.