STUDIES IN FINANCIAL MEASURE:

For fun and educational purposes let us analyze an office building in Seattle.

Depending upon your investment strategy you may be looking to diversify your portfolio with commercial real estate. A great way to mitigate potential risk is to acquire properties with stabilized rents and property management.  The financial measure report below provides breakdown evaluation and acquisition approach of such property.

This is an actual real estate investment analysis rich with vital insights.

This report displays a variety of financial measures an investor would use to determine a worthy acquisition.

Notice the Cap Rate is 6.46%. This report chose to use capitalization rate as a common financial measure.

Lets talk about Cap Rates and why it is often misunderstood. Do you agree Cap Rates is the best financial measure to use? Please share why or why not in the comments.

Cap Rates in Commercial Real Estate

LEARN ABOUT CAPITALIZATION RATES

 

Notice the Internal Rate of Return (IRR) with financing and without.

Lets talk about what factors comprise the IRR and how it differs from the Cap Rate as a financial measure.

Notice how the Loan To Value (LTV) effects the debt coverage ratio.

In the commercial world, 25% LTV is used by many lenders to achieve an acceptable debt coverage ratio.

These factors amount to a sensitivity analysis which helps us figure out the sales price.

Let stay ahead of the game in commercial real estate by reviewing your input values and running the numbers.  

There are quite a few financial measures used in the value and performance of investment properties.

Some common Financial Measures are Gross Income Multiplier, Return on Equity, Debt Coverage Ratio, Loan to Value Ration, Operating Expense Ratio, Default Ratio, Long Term Discount Cash Flows.

Which financial measure an investor chooses to determine value is predicated upon the investors strategy.

Do you have any tips for evaluating commercial real estate please share in the comments!

Like what you’ve read? Subscribe to our blog by adding your email address to the contact in the website https://victorylanebrokerage.com/. You’ll be the first to hear about our updates!

 

 

 

Repositioning

Repositioning is to determine all best uses and selecting the best one. Best use deliberation is actual construction costs necessary to attract desirable new tenants. A keen understanding of markets and clever construction applications is critical for best repositioning efforts.

Industrial

Industrial is making a comeback in demand, not for manufacturing as much, but rather logistics. Big box distribution companies need large warehouse storage and delivery facilities all across America. Some preferred locations to invest are inside urban cores and near transportation hubs like railroads, airports and shipping docks.

Offices

Office is on shaky ground in 2020. Best office investments are in the A plus category with tech companies being the most attractive tenants. Clever repositioning for B minus categories will probably be required to accommodate the newer economy.

Multi-Family

Multifamily development is normally in strong demand. Labor and materials are expensive and cover most of your development budget. To determine your investment rate of return you need to consider projected revenues. If you plan on upgrading mechanical and structural systems you must incorporate clever repositioning strategies.

Land Acquisition

Land acquisition is normally the first prelude to development. A forensic study regarding zoning, critical areas, soil conditions, etc. is necessary to ensure project compatibility.