The commercial real estate market is in recovery, with Primary Markets showing the best performance followed by secondary and tertiary markets. In a robust market, there is substantial data from comparable sales to apply to valuation and determine benchmark numbers for cap rates, discount rates, and sales prices per square foot. Not so in secondary and tertiary markets, and not so for properties with values of less than $2.5 million. Because investors, brokers, lenders, appraisers, servicers, receivers, lawyers and the courts consistently need to understand the current value of an asset, it is important for all real estate professionals to know how to provide valuations that do not completely rely on historical data to determine value.
The class will explain (through examples and a case study) methodologies for establishing value in light of current market conditions and a lack of strong comparable sale date. Each methodology will be discussed conceptually, and then demonstrated. The methodology will then be tested for its viability in the marketplace.
This class will begin with an overview of the current space markets, capital markets and demographic trend risk factors, and the effect of current conditions on established methodologies for determining the value of income producing properties. Primary attention will be on creating defensible capitalizations rates and discount rates using real time and forward looking analytics, rather than benchmark data.
Course Outline and Highlights
- Understanding the current investment marketplace
- Understanding current Real Estate Cycles and Risk
- Understanding the importance of historical data in the process of establishing value
- Understanding the dangers of using “down market” data to determine value
- The use of Comparable Sales Data to establish value
- The use of Capitalization Rates to establish value
- Discounted Cash Flow Process
- Band of Investment
- Real Time Supply and Demand Data