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LearnCRE.com - Real Estate 101 - Market Analysis

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Learn Commercial Real Estate Market Analysis.

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LearnCRE.com - Real Estate 101 - Market Analysis

  1. 1. Market Analysis LearnCRE.com Real Estate Finance 101
  2. 2. LearnCRE.com What is Market Analysis? + Why? – So we can know where the market is, where it is going, and how to underwrite! + Feeding inputs: What are four main components of a Feaso? – Costs – Expenses – Income – Value + Market Analysis looks at Income and Value primarily via – Lease Comparables – Sales Comparables 33 Costs to acquire and develop - Recurring costs to the project - Rents received + Stabilized property value +
  3. 3. LearnCRE.com Terminology + Lease Comps – Net Effective Rent – Market Rent – Starting Rent – Term – TI allowance – Rent free – Straight Line Rent – Rent Bumps/ Escalations/Adjustments 34 + Sale Comps – Passing yield – Passing Rent – WALE – Cap Rate (economic – TI (amort) – Reversion / Under-rented / Over-rented – Capex
  4. 4. LearnCRE.com Lease Comp Analysis + What are the following leases worth? Is the market rent $4.50? 35 Term Lease 1 Lease 2 Lease 3 Start Rent $4.50 $4.50 $4.50 Term 3 15 10 TI $2 $5 $10 Rent Free 3 month 18 months 6 months Rent Escalations $4.50, $5.50, $7.00 2.5% pa First 5 - $4.50 Second 5 - $8.00
  5. 5. LearnCRE.com Sales Comp Analysis + What are the following buildings worth? 36 Term Sale 1 Sale 2 Sale 3 Acq Price 50,000,000 25,000,000 25,000,000 Sqft 500,000 250,000 250,000 “Cap Rate” 4.5% 7% 10% WALE 0.2 10 4.5 Description Class A building in IEW, 32’ clr. Class A distribution building in LA, 75k office included, accommodates 100k expansion. Class B distribution building, lease signed in 2007
  6. 6. LearnCRE.com Sales Comp Analysis 37 + Help! Term Sale 1 Sale 2 Sale 3 Analysis Leasing/Vacancy Capex adjustment Reversion Market Rent $5.25 $7.00 $6.00 TI Existing $2 $12 (overstd office) $2 Additional Value $3.3m (expansion land) Leasing Costs (TI+RF+LU+LC) $15 - - Extras 75k office? Expansion land? Reversion Yes? Yes? Passing Rent $4.50 $7.00 $10.00 Other? Term of Initial Lease 10 10 10 FAR 50% 50% 50% TI (Tenant at lease signing) $0 $0 $0

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