How Special Purpose Real Estate Properties Hold Their Value

In the world of real estate investment, certain properties stand out for their unique characteristics and resilience in maintaining value regardless of market fluctuations. These Special Purpose Real Estate properties, distinguished by their singular use or function, offer investors a distinct opportunity for stable returns and long-term financial security. Special Purpose Real Estate Properties are in short supply when compared to most property types. The demand for them remains fairly constant.

In this comprehensive exploration, we delve into the factors that contribute to the enduring value of Special Purpose Real Estate properties. We will also highlight specific special property types and specific market statistics to reinforce the point. Those statistics will also help our readers decide how knowing the detailed stats, when working with the right specialists, will deliver maximum results.

What Are Special Purpose Real Estate Properties?

Simply put, Special Purpose Real Estate properties are those that were designed and built or subsequently modified to meet a specific set of needs. The design, or modification, is intentional and specific. The building, therefore, has limited use. Its purpose-designed features deliver specific and possibly unique benefits to its owner or occupant.

A Primary Reason for Special Purpose Properties Holding Their Value

The alternative to purchasing a Special Purpose Real Estate property would be to invest in or lease a more general building and then spend unprofitable time and resources converting it to the required purpose. That, on its own, is one of the major reasons why such properties maintain their value despite how other market factors may impact other building types.

Examples of Special Purpose Real Estate Properties

There are many examples, including:

Schools and Early Learning Centers
Churches and other specific Religious Facilities
Breweries
Gas Stations
Specialized Manufacturing Plants
Environment-Controlled Warehouses
Hospitals
Nursing Homes
Hotels
Sports Complexes

How Do Passive Investors and Owner-Operators Benefit From Special Purpose Real Estate Buildings?

The Principle of Economic Rent. Passive investors know that a purpose-designed building in the right location will attract high lease income.
Lessees know they will maximize the use of that design to speedily deliver the services to their specific market at a price the market will pay.
Owner-operators know that paying a higher $/SF for the right property in the right location enables them to deliver their profitable business purpose sooner.
They do not invest time and money in redesigning and repurposing a different building.
The basics of supply and demand come into play. There are fewer special purpose buildings than general purpose buildings. In the right location (such as Northern Virginia), there is an active supply of ready, willing, and able purchasers and lessees waiting for those buildings to come on the market.
Owner-operators who want to sell may well achieve maximum profit in two parts. They sell their correctly-valued business to one prospect and the special purpose building to another prospect. Some business owners are happy to buy an existing operation and lease the property. Passive investors own the building, agree to an NNN lease, and either make it a long-term part of their portfolio or know they can sell it later to another investor or to the current tenant.

Northern Virginia Special Purpose Building Statistics

Let’s take a look at recent Northern Virginia stats for Special Purpose buildings.

Current Inventory stands at 262 million Sq Ft (MSF) (+1.1% on last year.)
Under Construction: 7.3 MSF with an average SF of 253K per building.
12 Month Net Absorption: 1.3 MSF (+0.5%.)
Market Sales Price: $268/SF. (+4.6%.)
Sales Volume in the Past Year: $2.2B representing 426 properties sold.
Market Asking Rent: $31.34/SF.
Available Asking Rent: $34.00/SF.
Vacancy Rate: 14.8%, or 38.7MSF.
Market Cap Rate: 6.74%.

Northern Virginia School and Early Education Centers

Current Inventory stands at 2 MSF (+1.0% on last year.)
Under Construction: 41 KSF with an average SF of 13.7K per building.
12 Month Net Absorption: 52.8 KSF (+361.1%.)
Market Sales Price: $457/SF (+3.6%.)
Asking Price in the Past Year: $526/SF.
Sales Volume in the Past Year: $15.4 M, representing six properties sold.
Market Asking Rent: $39.24/SF.
Vacancy Rate: 0.5%, or 10.7KSF.
Market Cap Rate: 5.8%.
12 Month Occupancy at Delivery: 100%.
24-month Lease Renewal Rate: 91.6%.

What These School and Early Education Center Stats Tell Us

The total inventory of school and early education center buildings is 701 in Fairfax, Loudoun, and Prince William County.
In the past year, only six came on the market. A safe inference would be that the market these businesses serve is constant, even taking into account the issues recently associated with inflation and high-interest rates.
The market sales price/SF for this sector increased by 3.6%. Few other CRE sectors recorded an increase.
The asking rent per SF also increased (3.1%), resulting in a cap rate of 5.8%, compared to the special building market as a whole (6.75%.)
12-month occupancy at delivery was 100%.
The 24-month lease renewal rate was 91.6%.

Those numbers reinforce the fact that the market for Special Purpose buildings, particularly schools and child care centers, is stable.

Church Building and Related Religious Facilities Statistics 2010 – 2023

There are currently 1,601 freestanding religious buildings in Northern Virginia.

Sales of church properties have fluctuated year-by-year since 2010, as have Sales Price/SF. We will look at the six most active years to provide a general picture.

2010 Sales Volume: $8.1M. Sales Price/SF ranged from $81.80 to $427.30.
2013 Sales Volume: $21.8M. Sales Price/SF ranged from $63.65 to $327.30.
2017 Sales Volume: $68.6M. Sales Price/SF ranged from $263.65 to $763.65.
2021 sales volume: $27.2M. Sales Price/SF ranged from $54.55 to $254.55.
2022 Sales Volume: $13.2. Sales Price/SF ranged from $100.00 to $281.80.
2023 Sales Volume: $14.9M. Sales Price/SF ranged from $209.10 to $572.70

Prices per SF are rounded to the nearest 5 Cents.

Serafin Real Estate Is Hyper-Focused on Special Purpose Properties

Serafin Real Estate is not only a recognized specialist in this market sector, but we are also a top-performing brokerage. We deliver a special kind of value to sellers, would-be investors, potential owner-operators, and lessees. Our in-depth knowledge of early education centers, schools, religious facilities, and breweries means we stand apart in both these subsectors and our geographical niche of Loudoun, Fairfax, and Prince William Counties.

Real estate-centered enterprises owe it to themselves to work with experts who can value both the business (when the business is to be sold) and the real estate. Special Purpose buildings carry a specific value that only experts understand well enough to value accurately.

Serafin RE’s international database of specific investors and prospective owner-operators makes us the go-to brokerage for sellers looking to move on. Our detailed, segmented database enables clearly focused targeting of potential buyers and lessees. We directly link their goals to what is currently – and likely to be – on the market.

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Disclaimer: The data and insights presented in this blog post were sourced from Costar.com and proprietary sources of Serafin Real Estate (SRE). While we strive to provide accurate and up-to-date information, SRE cannot be held liable for any inaccuracies or omissions. Readers are advised to conduct their own due diligence before making any decisions based on this information.