Criteria for making decision

Making a decision

Rules-of-thumb: – Market Multipliers RPF, SPPF, OER– Income Multipliers GIM, NIM, BTCF

ATCF– Rates of return OCR, EDR, ATR

Traditional appraisal:– Market Comparison Approach– Cost Approach– Income Approach

Market Multipliers

Rent per square foot (RPF)– Determine Rent by collecting market data– The comparables are examined in terms of

• Date sales• Lease terms• Lease Options• Physical Characteristic: Age, Location, Size• Tenant Rating

– Justify the proper lease using the most comparable.

Market Multipliers: Comparisons

Sales Price per square foot– determine the price of the property based on

its size (area)– Comparison is required based on the previous

slide.

Sales Price per square foot: SPPFGross Income Multiplier: GIMOperating Expense Ratio: OER

Market Multipliers

Comp 1 Comp 2 Comp3Rent per square foot (net) $15.60 $14.20 $14.25

(Income at sales / Net leaseable area)

Rent per square foot (gross) $14.80 $14.10 $13.85

(Income at sales / Gross area)

GIM 5.11 4.90 4.88

(Sales price / Income at sales)

OER 40% 38.5% 38%

(Operating expense at sales / Effective Gross Income)

Homework

Make the comparison Analysis for rental comparables. Design your sheet. Then estimate the market rent and rates used for analyzing the investment

Forecast NOI under the existing leases for 6 years. Detail your assumption (if any)

Calculate the cash flow from selling the building at the end of year 5.

Constructing a debt service table

Mortgage Constant:

MC = i/m

1 - 1

1 + i nxm

Loan principle $1,000,000 bath at 7% per annum 25 yrs.Monthly compounding. What is the monthly payment

Monthly payment = Principal x MC