The valuation of commercial grain silos

Abstract

A grain silo is a unique form of real estate because of its construction, use and income generation. The study is based on vertical concrete silos built for the sole purpose of storing grain. Silos are, in essence, income-producing properties, but because the tenant is the owner of grain and oilseed, the income produced by the silo fluctuates from year to year depending on the size of annual grain harvests. The purpose of this qualitative study is to establish which valuation methodology is best applicable to grain silos and to explore the factors that make grain silos unique in the determination of their value. Sources of information include historical research, unstructured interviews and case studies. The results of this study indicate that grain silos should be valued using the income capitalisation method. Income is calculated based on a long-term trend; expenses are calculated on financial information, and a capitalisation rate is calculated by adding risk to a baseline capitalisation rate. This study provides a guide to valuers and silo owners on how to determine the value of silos. The study focuses on grain silos that store maize and soya beans in the Highveld of Mpumalanga. The principles determined will be the same if other silos in other regions charge for storage and handling in the same way as used in this study.