This article is valuation commentary. It is not legal, tax, accounting, or investment advice. Specific engagements depend on facts and applicable professional standards.
When standard CRE appraisal stops working
A standard commercial real estate appraisal works when the property can be analyzed as land plus building rent. Office, retail, multifamily, industrial, and many other property types fit that frame. The income approach uses market rent and market vacancy. The sales approach uses comparable arm’s-length transactions of similar buildings. The cost approach checks the result against replacement cost.
That standard frame breaks down when value depends on something more than land and building. When operating business activity, regulatory licenses, equipment, brand or management systems, ground leases, or unusually specific physical design drive value, the appraisal has to handle additional questions. Hotels, senior housing, healthcare facilities, restaurants, gas stations, car washes, marinas, golf courses, self-storage, special-purpose industrial, theaters, and many others fall into this category.
What changes when the property is special-purpose
Three things change for a special-purpose appraisal that don’t change for a standard CRE engagement.
- The interest being appraised. USPAP requires the appraiser to identify the relevant characteristics of the subject and the real property interest being appraised. For a special-purpose property, that interest may be fee simple, leased fee, leasehold, or going concern, and the choice depends on the assignment, not on convention.
- The income stream attribution. Operating real estate generates revenue from real estate and from business operations. The appraiser has to characterize what portion of the cash flow is attributable to the property versus the operating enterprise, and apply that allocation in the analysis.
- The reviewer’s expectations. Federal lending guidelines explicitly prohibit substituting going-concern value, value in use, or special value to a specific user for market value in federally related transactions. Those values can be reported separately but cannot replace market value.
Property types that typically need specialized treatment
- Revenue from rooms, F&B, parking, ancillary
- Operating intangibles: flag, franchise, management agreement
- FF&E, workforce, brand value
- Revenue includes shelter, services, and reimbursement
- Regulatory licenses and certificates of need
- HUD 232 financing has specific framework
- Limited alternate-use buyer pool
- Specialized improvements may be functional or obsolete
- Equipment and machinery often material to value
A short list of others that frequently need this treatment: gas stations and convenience stores, car washes, restaurants and quick-service food, marinas, golf courses, self-storage, theaters, bowling alleys, RV parks, and aggregate or extractive operations.
The going-concern question
For property-rich operating businesses, the appraiser has to decide what the assignment is actually asking. Three common configurations:
- Federal lending: market value is required, and going concern can be reported separately but not substituted
- Property tax appeal: the assessor wants the real estate, not the business
- Tenant build-out separated from base building: fee simple of the building shell
- Sale of the underlying real estate without the operating business
- Operating-asset transactions: buyers acquire the business, not just the building
- HUD Section 232: fee-simple market value of the total assets of the business
- Estate planning where the entity owns both
- ASC 805 allocations in operating-business acquisitions
The Rushmore method and what changed in 2025
The Rushmore method is a long-standing approach to separating real-property income from operating intangibles in hotel valuation. It works by deducting management fees and franchise fees from operating income, treating the residual as attributable to real estate. For decades, that approach was widely used in property-tax disputes and in some financing contexts.
The California Supreme Court’s August 2025 decision in Olympic & Georgia Partners v. County of Los Angeles did not reject Rushmore as a categorical answer, but it required something more direct: when a property owner identifies and values a nontaxable enterprise asset, the assessor has to show the management-fee deduction actually exceeded that asset’s value. Citing Rushmore’s article isn’t proof. That holding raised the standard of evidence for any operating-real-estate appraisal where intangibles are at issue.
Why dual-discipline credentialing matters
Special-purpose and going-concern appraisal sits at the intersection of two professions. The real-property side requires Certified General Real Estate Appraiser credentials and USPAP discipline. The business-valuation side requires familiarity with ASC 805, SSVS, and going-concern enterprise analysis. Few practitioners hold credentials across both, which is why complex going-concern engagements sometimes get split between two firms, with predictable results when the conclusions do not reconcile.
LHM’s positioning is built specifically for this category. The founder holds a California Certified General Real Estate Appraiser license and is an ASA Business Valuation candidate. That dual-discipline foundation matters most where real-property and enterprise value have to be characterized within a single coherent analysis.