KEY FACTORS TO REMEMBER
Understanding the Difference Between Proposed and Existing CRE
Proposed Commercial Real Estate - Understand YIELD ON COST
Existing Commercial Real Estate – Understand CAPITALIZATION RATE
1. This is a key metric to consider by investors and lenders as a Market Valuation Tool.
2. The most simple definition is Net Operating Income / the determined Asset Value.
3. This is used to evaluate a completed sale, a proposed purchase, or a mortgage financing, and can be used to consider optional properties.
4. This is typically used by a passive investor seeking yield.
- This is a key metric to consider by developers to consider for to-be-built.
- The important calculation is the Stabilized NOI / Total All In Cost.
- Stabilized Net Operating Income typically means the projection for the Third Year of operations that assumes the property has similar occupancy trends for at least the latest trailing 6-months. This varies by property type, but for apartments it is about 93% occupancy.
- This is used during the initial underwriting and evaluation considering what is the Highest And Best Use for the site.
- This is used to understand the risk and the real estate value creation.
Existing Commercial Real Estate – Understand CAPITALIZATION RATE
1. This is a key metric to consider by investors and lenders as a Market Valuation Tool.
2. The most simple definition is Net Operating Income / the determined Asset Value.
3. This is used to evaluate a completed sale, a proposed purchase, or a mortgage financing, and can be used to consider optional properties.
4. This is typically used by a passive investor seeking yield.