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You should begin the process by familiarizing yourself with Table 12.4. This table outlines the sequence of events to follow in determining the total reproduction cost of a subject property. This value includes all hard and soft development costs to presently create a replacement property, which is as close to a replica of the subject property in its entirety as can be numerically approximated. Other significant values that are a part of the total reproduction (development) cost and are generated in the process include:
- Total Structural Reproduction (Development) Cost – used to generate the insurable value and the Probable Maximum Loss (PML) associated with the seismic risk of the investment.
- Insurable Value Estimate – used to verify the adequacy of fire and casualty insurance limits of coverage for the property.
- Shell Reproduction (Development) Cost – all hard and soft development costs, less the costs of tenant finishes and leasing commissions. This value represents the equivalent building and site development cost prior to leasing (if new) or when vacant (if previously occupied).
- Loan-to-Total-Reproduction-Cost Ratio – used as a comparison to the traditional investment parameter of loan-to-market-value ratio. The difference between the loan-to-market-value ratio and the loan-to-total-development-cost ratio represents the value that has been created by the developer constructing and leasing the property. Large differences indicate that there is a strong incentive to develop and lease in the market and that there is likely to be new competition in the future. The closer that the loan-to-total-development-cost ratio approaches 100 percent, the lower the basis that a developer or owner likely maintains in the property.
- Construction Contract Amount, Building & Site – For a recently constructed property, this value can often be verified by obtaining a copy of the original General Construction Contract.
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