In the realm of Small Business Administration (SBA) lending, understanding the classification and appraisal of Special Purpose Properties is crucial. These properties present unique challenges due to their specific design and limited adaptability. This article explores the SBA’s definition of Special Purpose Properties, the characteristics that categorize a property as such, clarifies why appraising these properties differs from conducting a standard business valuation, and highlights common appraisal challenges and practical tips for lenders.

Defining Special Purpose Properties

According to the SBA’s Standard Operating Procedure (SOP) 50 10 8, effective June 1, 2025, a Special Purpose Property is characterized 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.”

This definition underscores that such properties are tailored for particular functions, making them less versatile for alternative uses without significant modifications.

Examples of Special Purpose Properties

The SBA provides a non-exhaustive list of properties that typically fall under this category:

• Amusement parks
• Bowling alleys
• Car wash facilities
• Cemeteries
• Cold storage facilities (where more than 50% of total square footage is equipped for refrigeration)
• Dormitories
• Farms, including livestock and dairy facilities
• Funeral homes with crematoriums
• Gas stations
• Golf courses
• Hospitals and medical facilities
• Hotels and motels
• Marinas
• Mines
• Nursing homes, including assisted living facilities
• Oil wells
• Quarries, including gravel pits
• Railroads
• Sanitary landfills
• Service centers with pits and in-ground lifts (e.g., oil and lube, brake, or transmission centers)
• Sports arenas
• Swimming pools
• Tennis clubs
• Theaters
• Wineries

These properties are designated special purpose due to their specialized designs and functionalities.

Characteristics Defining Special Purpose Properties

Several key attributes distinguish Special Purpose Properties:

1. Unique Physical Design – Tailored architecture limits adaptability.
2. Special Construction Materials – Built for specific operational needs.
3. Restricted Utility – Confined to the original intended purpose.

Appraisal Requirements for Special Purpose Properties

When an SBA loan involves a Special Purpose Property, specific appraisal requirements must be met:

• The appraisal must be conducted by a Certified General Real Property Appraiser with at least four going concern appraisals of similar properties in the past 36 months.
• The appraisal must allocate separate values for land, building, equipment, and intangible assets.

Common Challenges in Appraising Special Purpose Properties

Appraising Special Purpose Properties can be complex due to their niche nature. Common challenges include:

• Limited Market Data: Comparable sales for properties like amusement parks or crematoriums are scarce, making valuation difficult.
• Specialized Expertise: Appraisers need specific experience to accurately assess unique designs.
• Costly Modifications: Estimating the cost of converting a property for alternative uses can be speculative and impact valuation.

Conclusion

Special Purpose Properties, as defined by the SBA, require specialized appraisal methods distinct from traditional business valuations. Understanding these distinctions, along with the challenges and best practices for appraisals, is essential for proper SBA loan structuring and compliance.