A Special Purpose Property is defined in the SBA Standard Operating Procedure (SOP) 50 10 5(I) as “a limited market property with a unique physical design, special construction materials, or a layout that restricts its utility to the specific use for which it was built.” The most popular examples of Special Purpose Properties that SBA lenders finance include hotels, car washes, gas stations, bowling alleys and golf courses. The SBA considers the following Special Purpose Properties (SOP pg. 224):
The details are very important. For example, a funeral home with a crematorium is included in the list, but a funeral home without a crematorium would not be considered a Special Purpose Property. Similarly, a service center with pits and in-ground lifts is included in the list, but a service center without pits and in-ground lifts would not be considered a Special Purpose Property.
For Special Purpose Properties, “the lender must obtain an independent appraisal performed by a Certified General Real Property Appraiser.” Additionally, each of the following three criteria must be met (emphasis added):
- The appraisal must allocate separate values to the individual components of the transaction including land, building, equipment and intangible assets.
- The Certified General Real Property Appraiser must have completedno less than four going concern appraisals of equivalent special use property as the property being appraised, within the last 36 months, as identified in the qualifications portion of the Appraisal Report.
- Each appraisal assignmentunder this section must be… in compliance with current USPAP guidelines.
Rather than asking real estate appraisers to maintain a business appraisal designation (which is very rare), the SBA now requires a Special Purpose Property to be appraised only by those qualified real estate appraisers with extensive experience dealing with the special property type in question.
In the rare case where a Special Purpose Property, such as a gas station or car wash, is operated from a third-party leased location (unaffiliated with the business) where real estate is not included in the transaction, a business appraiser should be engaged, as real estate appraisers cannot appraise a business sans real estate.
My suggestion to credit departments is to send the list of Special Purpose Properties to each of your approved real estate appraisers and ask each one to point out which type of property he/she has experience appraising, with experience being defined as “four going concern appraisals of equivalent special use property as the property being appraised, within the last 36 months.” This way, when a Special Purpose Property is being financed and requires an appraisal, your bids can be sent only to qualified appraisers and you’re not left scrambling to find a qualified and experienced real estate appraiser at the last minute.