Property Appraisal During Pre-Construction and Post-Completion

Real estate valuation is a decision tool long before it is a final report. The most useful appraisals I have delivered did not just set a number, they provided a view of risk, timing, and what had to go right for that number to hold. Nowhere is that more important than on a property that has not yet been built. A pre-construction appraisal asks the market to price a promise, with all the uncertainty that implies. A post-completion appraisal prices performance: what actually got delivered, how it is operating, and how the market is reacting.

The gap between these two moments is where lenders, developers, equity partners, and municipalities make high-stakes decisions. This piece unpacks how a real estate appraiser approaches valuation at each stage, where the methods overlap, where they diverge, and what clients can do to get credible, bankable results. While the principles apply widely, I will draw on commercial property appraisal practice in Ontario, including London and surrounding markets, where zoning, construction logistics, and leasing depth often set the tone for value more than headline cap rates.

When a building is only lines on a plan set, value flows from feasibility rather than performance. You are valuing the finished asset on a hypothetical date, then walking back the risks, costs, and time to arrive at today’s price. The appraiser is effectively blending market evidence with a development pro forma, and the tolerance for error is higher because so many inputs are assumptions.

Once the building is complete, those assumptions harden into facts. Actual rentable area replaces gross floor area estimates. Actual costs replace budgets. Tenant rosters replace leasing assumptions. The market may also have moved through an interest rate cycle or a supply shock. Post-completion work is still judgment-driven, but it has the advantage of observed income, observed expense loads, and real sales comparables.

I have seen multi-tenant industrial projects pre-sell on pro forma cap rates at 5.25 percent, only to reprice at 6.0 to 6.5 percent on completion because three things changed: steel costs ran high, delivery slipped three months, and the final tenants negotiated higher tenant improvement allowances that bled into net effective rents. A sound appraisal process helps stakeholders see those pivots while they can still course-correct.

For a property that has not broken ground, a real estate appraiser typically evaluates two value questions: what is the market value of the completed property as at a hypothetical future date, and what is the as-is value today, given current entitlements and conditions. Lenders care about both, often with covenants tied to loan-to-completed-value and loan-to-cost.

The development method underpins most credible pre-construction work for commercial real estate. It has two linked steps. First, derive the stabilized value of the completed project using an income approach cross-checked by sales evidence from comparable assets. Second, deduct all costs, soft and hard, including entrepreneurial profit and a present-value adjustment for time and risk. The arithmetic looks straightforward, but each term is a negotiation with the market.

On several mid-rise mixed-use infill sites in London, Ontario, we found that land value as a residual was driven far more by approval certainty than by the headline rent per square foot. A site with a clear path through site plan approval and a servicing strategy already vetted by the city could command double the residual land value of a similar site with uncertain stormwater management or a shadow study challenge. A careful real estate advisory process flags these choke points because they shift timing and contingency reserves more than any one line item in a budget.

Among the documents that matter most are the detailed budget and draw schedule, the signed construction contract form, and the leasing plan with evidence of tenant interest. A commercial property appraisal that glosses over the construction delivery model is incomplete. Guaranteed maximum price and stipulated sum contracts push risk toward the contractor, but they are not immunity shields. Cost escalation clauses, exclusions, and provisional sums finding a real estate appraiser can unwind certainty if left unexamined.

For income, the appraiser builds to a stabilized net operating income using realistic lease-up tempi and net effective rents. Where concessions are common, like free rent or step-up rent structures, the analysis must convert that into an average cash flow and a stabilized state. Markets with shallow tenant pools, such as secondary office nodes in Southwest Ontario, warrant longer absorption periods than downtown Toronto standards, even if asking rents look similar. A prudent pre-construction appraisal lays out a lease-up timeline that aligns with actual broker feedback and recent absorption data.

Cap rates deserve special attention. Investors do not buy cap rates, they buy risk. If the project is a first-phase industrial park on formerly agricultural land at the edge of the city, the exit cap when stabilized will price logistics, access, and developer reputation. If it is a boutique medical office near a regional hospital, tenant stickiness can drive lower exit yields, but only if fit-out quality and parking align with practitioner expectations. In London, medical office assets within a 10 to 12 minute drive of LHSC sites often clear at 25 to 50 basis points inside generic suburban office, provided tenant rosters are diversified beyond a single health system lease.

Those five items explain the majority of painful re-trades I have seen between term sheets and final loan agreements. A pre-construction appraisal that confronts them early can preserve credibility when a credit committee looks for reasons to haircut proceeds.

Clients often ask why the as-is value today can be substantially lower than the as-complete value less costs. The answer sits in entitlement risk. If zoning is not yet in place, or if site plan approval is pending with material conditions, the market will discount for the possibility of delay, redesign, or failure. In some municipalities, a change in council or a policy update can extend timelines by months. Lenders who specialize in land and pre-development lending price this risk every day, and a real estate valuation that pretends otherwise will confuse more than it helps.

In London, the difference between a site designated for mixed-use in the Official Plan and one with full zoning and a registered site plan can be dramatic. The first is a policy signal. The second is a permission to build, subject to conditions. A seasoned real estate appraiser in London, Ontario will pull the file, speak with planning staff, and weigh the likelihood and timing of approvals. The as-is value, if financing is sought before entitlements crystallize, reflects the market for partially de-risked land, not for finished buildings.

After practical completion and initial lease-up, appraisal shifts from construction feasibility to operating performance. The income approach becomes evidence-rich. We can tie market rent estimates to signed leases and to recent comparables within a few kilometers. We can test operating expenses against norms for the asset class and location. We can see whether the property’s physical reality matches the plans.

Accuracy in rentable area is not academic. I have seen NOI swing by six figures annually when the measured suite sizes differed from the pro forma by two percent. Post-completion, the appraiser ought to review measurement certificates, confirm the measurement standard used, and check whether floor plate irregularities, demising walls, or mezzanines were captured correctly. Property appraisal is a detail business. If the perimeter is wrong, everything downstream suffers.

On the sales comparison side, post-completion work benefits from fresh transaction data, especially when the market has been volatile. A distribution building delivered at 32 foot clear with cross-dock and 2 percent office finish is not the same asset as a 24 foot clear, end-load configuration with 10 percent office, even if both sit in the same industrial park. Cap rates, price per square foot, and buyer profiles will differ. A credible commercial property appraisal separates these differences instead of normalizing them away.

Not every building is stabilized the day it opens. A thoughtful post-completion appraisal distinguishes between in-place NOI and stabilized NOI, then explains the time and cost to reach stabilization. Where free rent or step-up rents were granted, the appraiser should present net effective rents that spread concessions over the lease term, alongside the actual cash flow timing. Banks sometimes lend against stabilized numbers, but they fund or escrow lease-up costs and reserve interest carry. Equity partners want to see how much remaining rent roll risk sits in year one and year two.

One 75,000 square foot flex office project we appraised on completion reported 96 percent leased by headcount, but net effective occupancy was closer to 85 percent once free rent periods and early renewal options with reduced rates were priced in. The difference mattered to the valuation because several buyers in that submarket underwrite to in-place income, not stabilized income, when leasing risk remains. The developer ultimately decided to hold for twelve months, complete the burn-off of concessions, and then sell into a stronger income story. The price premium they achieved more than covered the carry.

Post-completion, we finally learn the true all-in development cost. That number does not dictate market value, but it informs profit realization, refinance proceeds, and whether a sale makes sense. When construction costs run hot, as they have in recent cycles, I sometimes hear, We need the appraisal to reflect our cost base. Markets do not oblige. A real estate appraiser states what the market would pay, not what it ought to pay to make the developer whole.

That is not to say cost is irrelevant. Where the asset is specialized, with limited comparable sales, the cost approach can serve as a floor or a reasonableness test. For institutional-grade, income-producing assets, the cost approach usually plays a secondary role. In London and nearby industrial towns, new build industrial with conventional specs tends to trade on income and yield because sales evidence is deep enough to support it. Cost swings explain why expected margins compress or expand, but value still follows rent, vacancy, and yield.

A clean environmental file is more than a checkbox. Phase I and, where warranted, Phase II environmental reports influence lender appetite and cap rates. If soil vapour mitigation or groundwater issues required engineering solutions, the appraiser should understand how those systems were installed and whether they affect operating expenses or tenant perceptions. In some retail settings, legacy dry cleaner operations in a plaza can constrain financing unless the remediation plan is robust and monitored.

Building systems matter too. Energy performance has moved up the priority list for many buyers. Post-completion, documented performance on HVAC efficiency, lighting controls, and building envelope drives operating expense lines and tenant comfort. Properties that can substantiate lower utility intensity through submetering or commissioning reports can justify lower stabilized expenses in the valuation model, which flows directly into higher NOI and value at a given cap rate. In my files, the delta between a well-commissioned building and a poorly tuned one can be 30 to 60 cents per square foot in annual common area expenses, which at a 6 percent cap is $5 to $10 per square foot of value.

Timing often outmuscles execution. Between permit issuance Real estate consultant and ribbon-cutting, interest rates can move 150 basis points and the buyer pool can thin. A pre-construction appraisal done at the start of a project may anchor expectations at a yield that no longer exists by delivery. This is not an appraisal failure, it is a market shift. What matters is how often stakeholders refresh their valuation view during the build.

I encourage clients to commission light-touch valuation updates at key milestones: after tendered construction pricing is locked; at topping off; and when pre-leasing crosses a threshold such as 50 percent or 75 percent. In an orderly market, these updates deliver reassurance. In a volatile one, they offer lead time to adjust leverage, re-evaluate hold versus sell, or sharpen leasing incentives to reach stabilization faster.

Large national data series smooth over local realities. In London, tenant demand across industrial, medical office, and necessity retail has been steadier than in some larger metros, but supply can be lumpy. A 300,000 square foot industrial delivery has more impact on vacancy rates here than in the GTA. Lease comps need to be pulled carefully because nearby municipalities can set different property tax mill rates and offer different development charge regimes. A real estate appraiser in London, Ontario who does not know the practical difference between a site inside the urban growth boundary and one outside it will miss material value implications.

Real estate advisory in London, Ontario also benefits from relationships with local brokers and builders. On a recent commercial property appraisal for a small-bay industrial condominium project, early indications suggested $240 per square foot sell-out pricing based on a couple of headline deals. Conversations with brokers uncovered that those units had abnormally high office finishes and bespoke mezzanines that would not generalize. Adjusted comps at $210 to $220 told a truer story. Two months after completion, the first arm’s length sales validated that range.

The framework remains the same across stages, but the weights and data sources change.

At pre-construction, the income approach leans on:

At post-completion, the income approach anchors to:

These mechanics influence not only value but also the persuasion of the report. Credit teams and investment committees read the assumptions section closely. Tying each major input to evidence builds trust. When a report estimates market rent at $22 net for new industrial in the Veterans Memorial Parkway corridor, it should reference at least three recent deals within a sensible radius, and adjust transparently for clear height, loading, and office finish. Where evidence is thin, say for a specialized lab space, the appraiser should say so and explain the bridge from conventional office rents plus lab premiums validated in nearby markets.

Strong appraisal outcomes begin with a clear scope. Clients who share full drawing sets, budgets, third-party reports, and leasing correspondence can expect a tighter, faster analysis. When information is withheld or dribbles in, the appraisal either stalls or risks error. In pre-construction mandates, I ask for the construction schedule, the tender status, and any cost escalators. On post-completion work, I want the last twelve months of operating statements, rent rolls with lease abstracts, copies of any major capital invoices, and confirmation of any pending assessments such as supplementary taxes that have not yet hit the ledger.

It also pays to clarify the reporting standard required. Some lenders accept a shorter narrative report for progress draws, while first-mortgage originations on completed assets may require a full narrative with multiple approaches. Rush timelines can be accommodated, but only with early and complete data. A thin file delivered at 4 p.m. with a request for a next-morning valuation number is a recipe for caveats that no one enjoys.

Reconciling different approaches is not a mechanical average. Pre-construction, I often give the income approach primacy, use the cost approach to sanity-check if the implied land residual is plausible, and apply the sales comparison approach more as a corroboration where comparable development sites have traded with similar entitlements. Post-completion, the sales comparison and income approaches trade places depending on asset type. For stabilized income-producing property, the income approach typically carries the most weight, with sales used to pin the cap rate and express a price per square foot that the market recognizes.

In both stages, sensitivity analysis is essential. Lenders want to know how value moves if cap rates widen 25 basis points or if rents fall 5 percent. Developers want to see the breakeven occupancy or the rent level that keeps debt service coverage above covenant. The appraiser’s role is to present those stress points clearly, not to choose the rosiest case.

Market participants sometimes bristle at reappraisal triggers in loan agreements. In reality, they protect both sides. If pre-construction assumptions no longer fit the world mid-build, a fresh view can prevent over-advance and prompt a conversation about restructuring. After completion, a reappraisal ahead of a refinance can set expectations for proceeds and timing. I have seen clients delay a refinancing by a quarter to get through a large tenant’s rent-free burn-off, lift NOI by $200,000 annualized, and pick up another $2 to $3 million in loan proceeds at the same leverage target. The reappraisal told them precisely where the value inflection sat.

Use these as a short checklist, not a substitute for dialogue.

Sometimes the right answer is not a number but a strategy. A real estate advisory team can help sequence pre-leasing to de-risk a project, recommend specification tweaks that open the tenant pool, or model alternative phasing. In London, Ontario, we have guided clients to split a planned single-tenant industrial box into two-bay configurations with shared truck courts. The modest design change expanded the buyer pool and reduced lease-up risk, which compressed exit yields slightly and lifted value in a way that no amount of marketing could match.

For post-completion owners, advisory can focus on NOI optimization: energy retro-commissioning, re-basing recoveries to reflect actual usage, or amending leases at renewal to clean up ambiguous operating cost language. These are not dramatic moves, but at a 6.25 percent cap, every $10,000 in recurring NOI is worth $160,000 in value. Across a portfolio, that compounds quickly.

Pre-construction and post-completion appraisals are different lenses on the same asset. The first prices potential, the second prices performance. Both demand rigor, local knowledge, and frank communication. If you are a developer, engage your real estate appraiser early and treat them as a sounding board when the budget shifts or the leasing story evolves. If you are a lender, insist on clear evidence and sensitivity work that speaks to your downside protection. If you are an investor weighing a hold versus sell, focus on the NOI you can actually deliver in the next twelve months and the cap rate that buyers in your submarket are really paying, not the one you hope will return.

In stable markets, these disciplines feel routine. In moving markets, they become the difference between hoped-for outcomes and achieved ones. That is the work, and it pays for itself when the numbers meet the market with no surprises.