Insight of Valuation: Corporate Valuations Team of Corporate ProfessionalsCorporate Professionals
An article on Corporate Valuations, Business Valuation Approaches, Methods of Business valuation- DCF Valuation, RBI Valuation, Valuation for IT Sector, Enterprise Valuation
This is a discussion of the methods and uses of business valuation techniques. This webinar was presented by Theresa Seidler-Shonat, a Business Valuation Specialist from Smith & Gesteland, a Madison, Wisconsin accounting and consulting firm.
Insight of Valuation: Corporate Valuations Team of Corporate ProfessionalsCorporate Professionals
An article on Corporate Valuations, Business Valuation Approaches, Methods of Business valuation- DCF Valuation, RBI Valuation, Valuation for IT Sector, Enterprise Valuation
This is a discussion of the methods and uses of business valuation techniques. This webinar was presented by Theresa Seidler-Shonat, a Business Valuation Specialist from Smith & Gesteland, a Madison, Wisconsin accounting and consulting firm.
14º Workshop Trend - Texto de apoio - Revenue Management Elizabeth Wada
Revenue Management techniques in hospitality industry –
A comparison with reference to star and Economy Hotels
Vani Kamath*, Shweta Bhosale* and Dr.Pradip Manjrek
The recent economic growth coupled with uncertainties has resulted in the stakeholder's curiosity and interest in Valuations of their respective investee Companies and also the estimated Valuations of the Targets available for Sale which has led to a greater demand for Business Valuation services.
Since as of now there are no Regulated standards for Valuation in India, numerous conceptual controversies still remain, even among the most prominent practitioners. With a view to give an overview of the Valuation concepts in general and the practical issues in particular, www.corporatevaluations.in, an online venture of Corporate Professionals Capital, SEBI Registered Merchant Banker has prepared this report on "Insight of Valuation". Hope you find it useful. Suggestions for improvement are invited @ info@corporatevaluations.in
ANGEL CAPITAL SUMMIT PRESENTATION: Due Diligence: Your Offensive Line, Your Offensive Weapon.
This presentation takes the reader through the due diligence process at a high level and sets expectations around what angel investors should be analyzing and exploring when analyzing a potential angel investment. Specifically, it covers how long should an angel investor spend on due diligence, an efficient due diligence process to quickly weed out unattractive deals and what things are analyzed when performing deep due diligence.
Ryan Goral, Founder of Strategic Equity Partners, www.separtners-llc.com
Capital Market Line graphically represents all portfolios with an optimal combination of risk and return.
https://efinancemanagement.com/investment-decisions/capital-market-line
14º Workshop Trend - Texto de apoio - Revenue Management Elizabeth Wada
Revenue Management techniques in hospitality industry –
A comparison with reference to star and Economy Hotels
Vani Kamath*, Shweta Bhosale* and Dr.Pradip Manjrek
The recent economic growth coupled with uncertainties has resulted in the stakeholder's curiosity and interest in Valuations of their respective investee Companies and also the estimated Valuations of the Targets available for Sale which has led to a greater demand for Business Valuation services.
Since as of now there are no Regulated standards for Valuation in India, numerous conceptual controversies still remain, even among the most prominent practitioners. With a view to give an overview of the Valuation concepts in general and the practical issues in particular, www.corporatevaluations.in, an online venture of Corporate Professionals Capital, SEBI Registered Merchant Banker has prepared this report on "Insight of Valuation". Hope you find it useful. Suggestions for improvement are invited @ info@corporatevaluations.in
ANGEL CAPITAL SUMMIT PRESENTATION: Due Diligence: Your Offensive Line, Your Offensive Weapon.
This presentation takes the reader through the due diligence process at a high level and sets expectations around what angel investors should be analyzing and exploring when analyzing a potential angel investment. Specifically, it covers how long should an angel investor spend on due diligence, an efficient due diligence process to quickly weed out unattractive deals and what things are analyzed when performing deep due diligence.
Ryan Goral, Founder of Strategic Equity Partners, www.separtners-llc.com
Capital Market Line graphically represents all portfolios with an optimal combination of risk and return.
https://efinancemanagement.com/investment-decisions/capital-market-line
The Art of Business ValuationMany investors insist on affixing e.docxmehek4
The Art of Business Valuation
Many investors insist on affixing exact values to their investments, seeking precision in an imprecise world, but business value cannot be precisely determined. Reported book value, earnings, and cash flow are, after all, only the best guesses of accountants who follow a fairly strict set of standards and practices designed more to achieve conformity than to reflect economic value. Projected results are less precise still. You cannot appraise the value of your home to the nearest thousand dollars. Why would it be any easier to place a value on vast and complex businesses?
Not only is business value imprecisely knowable, it also changes over time, fluctuating with numerous macroeconomic, microeconomic, and market-related factors. So while investors at any given time cannot determine business value with precision, they must nevertheless almost continuously reassess their estimates of value in order to incorporate all known factors that could influence their appraisal.
Any attempt to value businesses with precision will yield values that are precisely inaccurate. The problem is that it is easy to confuse the capability to make precise forecasts with the ability to make accurate ones. Anyone with a simple, hand-held calculator can perform net present value (NPV) and internal rate of return (IRR) calculations. The NPV calculation provides a single-point value of an investment by discounting estimates of future cash flow back to the present. IRR, using assumptions Of future cash flow and price paid, is a calculation of the rate of return on an investment to as many decimal places as desired. The seeming precision provided by NPV and IRR calculations can give investors a false sense of certainty for they are really only as accurate as the cash flow assumptions that were used to derive them.
The advent of the computerized spreadsheet has exacerbated this problem, creating the illusion of extensive and thoughtful analysis, even for the most haphazard of efforts. Typically, investors place a great deal of importance on the output, even though they pay little attention to the assumptions. "Garbage in, garbage out" is an apt description of the process.
NPV and IRR are wonderful at summarizing, in absolute and percentage terms, respectively, the returns for a given series of cash flows. When cash flows are contractually determined, as in the case of a bond, and when all payments are received when due, IRR provides the precise rate of return to the investor while NPV describes the value of the investment at a given discount rate. In the case of a bond, these calculations allow investors to quantify their returns under one set of assumptions, that is, that contractual payments are received when due. These tools, however, are of no use in determining the likelihood that investors will actually receive all contractual payments and, in fact, achieve the projected returns.
A Range of Value
Businesses, unlike debt instruments, do ...
Core Information from Boris Gantsevich| Real Estate InvestmentReal Estate Agent
The satisfactory element about Boris Gantsevich Real Estate investments that it provides exquisite possibilities for stable returns like as excessive yields, long leases with Low maintenance. in this list consists shopping department stores, strip shops, and other retail storefronts
A Business Valuation Article: Relative Valuation uses the valuation ratios of Comparable publicly traded companies and applies that ratios to the comapny being valued subject to necessary adjustments.
Key Issues in Relative Valuations- a) Peer Selection, b) Current Multiples or Forward Multiples, c) Adjustments to the Value...
Mercer Capital's Bank Watch | April 2022 | Statutory Fair Value vs Fair Marke...Mercer Capital
Brought to you by the Financial Institutions Team of Mercer Capital, this monthly newsletter is focused on bank activity in five U.S. regions. Bank Watch highlights various banking metrics, including public market indicators, M&A market indicators, and key indices of the top financial institutions, providing insight into financial institution valuation issues.
Authors John Paglia and Robert Slee offer an alternative to using methodology designed for privately-trade companies as a means to valuate privately-traded companies. The article was originally published in the May/June 2011 issue of The Value Examiner. It is provided courtesy of The National Association of Certified Valuators and Analysts (http://www.nacva.com)
Total Environment Tangled Up In The Green - Residential Plots Where Nature an...JagadishKR1
Embark on a journey where lush landscapes and contemporary living converge at Total Environment's Tangled Up In The Green Residential Plots in Devanahalli, Bangalore. Surrounded by verdant expanses, these plots offer an idyllic setting for your dream home. Immerse yourself in the serenity of nature while enjoying the finest amenities and design, where every moment is a harmonious blend of luxury and tranquility.
Lixin Azarmehr, a Los Angeles-based real estate development trailblazer, co-founded JL Real Estate Development (JL RED) in 2015 and serves as its CEO. Her expertise has propelled the firm to specialize in luxury residential and mixed-use commercial projects, with a portfolio that features upscale retail spaces and sophisticated care facilities.
Rixos Tersane Istanbul Residences Brochure_May2024_ENG.pdfListing Turkey
Tersane Suites Residences is a luxurious real estate project located in the heart of Istanbul, next to the beautiful Golden Horn. This unique development offers hotel concept residences with Rixos management, making it the perfect choice for both homeowners and investors.
The Tersane Suites Residences offers a wide range of options, from studio apartments to spacious four-bedroom units, all designed to the highest standard. The suites are finished with high-quality materials and feature modern, open-plan living spaces, fully-equipped kitchens, and large balconies with stunning views of the city and sea.
One of the standout features of Tersane Suites Residences is the Rixos management, which provides a truly exclusive and upscale living experience. Residents will have access to a range of luxury amenities, including a fitness center, spa, and indoor and outdoor swimming pools. Plus, the on-site restaurants and cafes provide a taste of the local and international cuisine.
The Tersane Suites Residences also offers a great opportunity for investors, as it provides a rental guarantee program. This means that investors can enjoy a steady income stream, with the peace of mind that their property is being managed by a reputable and experienced team.
The location of Tersane Suites Residences is also unbeatable, with easy access to the city’s main transportation links and within close proximity to the historic center, making it the perfect base for exploring all that Istanbul has to offer.
Are you searching for your dream home? Finding the perfect house involves more than just browsing listings; it’s about discovering a space that fits your lifestyle and needs. Whether you’re looking for a cozy suburban home, a chic urban apartment, or a spacious rural property, the right real estate can transform your life. Consider the location, amenities, and potential for future growth. Think about the community, nearby schools, and the convenience of shopping and transportation. A good real estate agent can guide you through the process, from identifying suitable properties to negotiating the best deal. Your dream home is out there, waiting to be found – let’s embark on this journey together!
Dynamics 365 Bid Management for Construction ProjectsDynamic Netsoft
This PDF provides a straightforward guide to using Dynamics 365 for efficient bid management in construction projects. Learn how to streamline processes, improve accuracy, and enhance productivity with practical tips and step-by-step instructions.
https://dnetsoft.com/dynamics-365-bid-management-software
500 acres of brilliance await you here at Riverview City which offers modern living, effortless convenience, and a beautiful natural setting. It is a mega township by Magarpatta City in Loni Kalbhor, Pune. Enjoy easy access to work, schools, and fun while experiencing a perfect work-life balance.
Visit - magarpattacity.developerprojects.in
Omaxe Sports City Dwarka stands out as a premier residential and recreational destination, offering a blend of luxury and sports-centric living. Located in the thriving area of Dwarka, this project by Omaxe Limited is designed to cater to modern lifestyle needs while promoting a healthy, active living environment.
Sense Levent Kagithane Catalog - Listing TurkeyListing Turkey
Sense Levent offers a luxurious living experience in the heart of Istanbul’s vibrant Levent district.
This cutting-edge development seamlessly integrates modern design with natural elements, featuring live evergreen plants maintained by an advanced irrigation system, ensuring lush greenery year-round.
The building’s elegant ceramic balconies are both stylish and durable, enhancing the overall aesthetic and functionality. Residents can enjoy the 700m Sky Lounge, which provides breathtaking views of Istanbul and a perfect space to relax and unwind.
Sense Levent promotes a healthy and active lifestyle with a full gym, swimming pool, sauna, and steam room, all available in the building. The interiors are crafted with high-quality materials, ensuring a luxurious and inviting living space.
Designed with young professionals in mind, Sense Levent features 1+1 and 2+1 units with smart floor plans and balconies. The project promises high investment returns, with an expected annual return of 6.5-7%, significantly above Istanbul’s average ROI.
Located in the rapidly growing and highly desirable Levent area, the development benefits from ongoing urban regeneration projects. Its prime location offers proximity to shopping malls, municipal buildings, universities, and public transportation, adding immense value to your investment.
Early investors can take advantage of discounted units during the construction phase, with an expected capital appreciation of +45% USD upon completion. Property Turkey provides comprehensive rental management services, ensuring a seamless and profitable investment experience.
Additionally, robust legal support and significant tax advantages are available through Property Turkey’s licensed Real Estate Investment Fund. Levent is a dynamic urban hub, ideal for young professionals with its numerous corporate headquarters and shopping malls.
Sense Levent is more than just a residence; it’s a place where dreams and opportunities come to life. Contact us today to secure your place in this exclusive development and experience the best of Istanbul living. Sense Levent: Sense the Opportunity. Live the Dream.
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Rams Garden Bahcelievler - Istanbul - ListingTurkeyListing Turkey
Implemented by Rams Global in Bahcelievler, the Rams Garden Bahcelievler Apartments includes 796 residences of different types from 2+1 to 5+1.
Next to the project, which will have 33 thousand square meters of green area, there will be 42 thousand 300 square meters of woodland. There will also be a 210-meter-long pond in the landscape of the project. There are 94.5 square meters of green space per flat.
Rams Garden Bahcelievler Apartments, which has 8 times more green space than the average of Istanbul with its 33 thousand square meters of green area located within a total of 75 thousand square meters, offers various housing options from 2+1 to 5+1.RAMS Garden has brought a lifeline to the construction industry.
Rams Global, which has signed projects in many places from Dubai to Phuket and delivered more than 20 thousand residences, is now starting new projects in Istanbul.
Rams Garden Bahcelievler is located 9 minutes from Metroport AVM, 5 minutes from Marmara Forum AVM, 12 minutes from Kazlıçeşme beach, 9 minutes from Yıldız Technical University, 7 minutes from Istinye University, 9 minutes from Ramada Hotel and Medicana Hospital.
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The SVN® organization shares a portion of their new weekly listings via their SVN Live® Weekly Property Broadcast. Visit https://svn.com/svn-live/ if you would like to attend our weekly call, which we open up to the brokerage community.
Referans Bahcesehir which is being constructed, in the center of the most regional destination as Bahçeşehir, shines out with its central location and unique landscape including social facilities such as a fitness center, sauna, sports facilities, children’s playground and recreational areas.
Not only drawing attention for immediate surroundings including commercial centers and private schools but also providing the easily accessible location with closeness to Tem Highway and connection roads, ongoing construction of 3rd Bridge Connection roads and Metro Projects
Bahcesehir is a rising value in the great city of Istanbul… Located at a new transportation junction in the northwest of the City… Located at such a spot that the access roads for the 3rd bridge and for the 3rd Airport will reach the region in 2016. The Marmaray and the Subway will extend all the way to Referans Bahcesehir respectively in 2018 and 2019.
465 flats and 34 stores are designed with an outstanding approach and arranged with a unique perspective offering the following options: 1 plus 1, 2 plus 1, 3 plus 1, 3.5 plus 1, 4 plus 1, and 4.5 plus 1. It is planned so as to safeguard you and your loved ones based upon a modern, technological safety approach. As you experience the joy and luxury here, you will be content and feet at ease.
It is worth seeing both inside and outside with heart-warming cafes, tasty restaurants and elegant stores… And it is ready to offer a vivacious social life with a warm and cozy space design.
A folding swimming pool and indoor swimming pools, playgrounds, Turkish bath, sauna… It has them all. Everything you need for your well-being and for having a pleasant time will be at your service. You simply need to align the rhythm of life with the rhythm of Referans Bahcesehir.
https://listingturkey.com/property/referans-bahcesehir/
Elegant Evergreen Homes - Luxury Apartments Redefining Comfort in Yelahanka, ...JagadishKR1
Experience unmatched luxury at Elegant Evergreen Homes, offering exquisite 2, 3, and 4 BHK apartments in the serene locality of Yelahanka, Bangalore. These meticulously crafted homes blend modern design with timeless elegance, providing a harmonious living environment. Enjoy top-tier amenities and a prime location, making Elegant Evergreen Homes the ideal choice for discerning homeowners.
Discover Yeni Eyup Evleri 2, nestled among the rising values of Eyupsultan, offering the epitome of modern living in Istanbul.
With its spacious living areas, contemporary architecture, and meticulous details, Yeni Eyup Evleri 2 is poised to be the star of your happiest moments. Situated in the new favorite district of Eyupsultan, claim your spot and unlock the doors to a peaceful life alongside your loved ones. Nestled next to the historical and natural beauties of Eyupsultan, embrace the comfort of modern living and rediscover life.
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Yeni Eyup 2 offers a life filled with joy with its green landscaping areas, gym, sauna, children’s play areas, café, outdoor pool, and basketball court. Reserve your place for unforgettable moments!
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Project:
Yeni Eyup 2 is conveniently located, with Istanbul Airport just 26 minutes away, the Mecidiyeköy Metro Line 4 minutes away, and the Tram Stop 5 minutes away, making your life easier with its central location.
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Your home is positioned in a privileged location, providing easy access to the city center, shopping malls, restaurants, schools, and other important places.
Yeni Eyup 2 offers 1+1, 2+1, and 3+1 apartment options designed to meet different needs. Find an option suitable for every lifestyle and open the doors to a comfortable life in your dream home.
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Brigade Insignia offers meticulously designed apartments with modern architecture and premium finishes. The project features spacious 3,3.5,4 and 5 BHK units, each thoughtfully planned to provide maximum comfort, natural light, and ventilation.
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Investing In The US As A Canadian… And How To Do It RIGHT!! (feat. Erwin Szet...Volition Properties
=== Investing In The US As A Canadian… And How To Do It RIGHT!! (feat. Erwin Szeto) ===
Ever been curious about Real Estate Investing in the US?? At Volition, for the past 14 years, we have been focused on helping investors invest in over $250M of real estate and generate $100M of wealth in the Toronto market, but we are always open to learning more about other business models and learning from other investors.
The US has always been an intriguing market to invest in. But the US is a big place… if you’re interested in investing in the US, you probably have a lot of questions, like:
☑️ Specifically WHERE should you invest?
☑️ What are the best markets to invest in and why?
☑️ How much are property prices there?
☑️ What are the returns like?
☑️ What is cashflow like?
☑️ Compared to investing in Toronto or other cities in Ontario, what are the benefits / tradeoffs?
☑️ What ownership structure should I use?
☑️ What are the tax implications?
☑️ Can I get financing?
☑️ What are tenants like?
Enter Erwin Szeto, a longtime friend of Volition. Since 2005, Erwin Szeto and his team have navigated the challenging landscape of being landlords in Ontario. Now, they are shifting their focus and guiding their clients' investments toward the more landlord-friendly environment of the USA. This decision comes after assisting Canadian clients in transacting over $440,000,000 in income properties. Faced with issues like affordability constraints, tenant-friendly laws, rent control, and rental licensing in Canada, Erwin sees a clear opportunity in the U.S. Here, there is a significant influx of investments leading to the creation of high-paying manufacturing jobs. Erwin and his clients are poised to capitalize on these opportunities where landlord rights are stronger and there is no rent control.
To facilitate this transition, Erwin has partnered with and become a client of SHARE, a one-stop-shop U.S. Asset Manager. Founded by Canadians for Canadians, SHARE enables as passive an ownership experience as possible for landlords in the U.S., while still maintaining direct, 100% ownership.
Erwin is “Making Real Estate Investing Great Again”!!
Website: https://www.infinitywealth.ca/
Facebook: https://www.facebook.com/iwinrealestate and https://www.facebook.com/ErwinSzetoOfficial
Podcast: https://www.truthaboutrealestateinvesting.ca/
Instagram: https://www.instagram.com/iwinrealestate/ and https://www.instagram.com/erwinszeto/
Investing In The US As A Canadian… And How To Do It RIGHT!! (feat. Erwin Szet...
Tierra Grande: Valuation of Commercial Real Estate in Today's Market
1. JANUARY 2010 Commercial Properties PUBLICATION 1929
A Reprint from Tierra Grande
Pick up the newspaper, turn
C
ompounding the problem, the recent credit crunch and
the ongoing economic downturn have dramatically
on the television or log on to reduced the number of commercial real estate transac-
tions. Critical market information is in shorter supply, making
the Internet, and you can find price discovery much harder.
Distressed commercial real estate loans and commercial
the price of a publicly traded mortgage-backed securities are less attractive to potential
investors when reliable property values cannot be established.
stock almost immediately. During the next few years, accurate value estimates will
be essential to creating efficient, liquid markets for these
With commercial real estate, investments.
Direct capitalization continues to be a popular, straight-
it’s not so simple. forward method for estimating commercial property values.
However, the ability to correctly estimate property incomes
Commercial properties are and market capitalization rates remains crucial to its success
as a valuation tool.
not publicly traded on a daily Investors and appraisers can face serious challenges when
attempting to use direct capitalization, especially in sluggish
basis. As a result, market or distressed real estate markets. The following discussion will
shed some light on challenges that may arise when deriving
values — the prices that commercial real estate values via the direct capitalization ap-
would be paid in an open and
proach.
Estimating Net Operating Income
competitive market — are To estimate market value using direct capitalization, a prop-
erty’s “stabilized” net operating income (NOI) must be divided
significantly more difficult by the market capitalization rate (Figure 1). NOI is based on
to obtain.
observed market data and should be easy to calculate. But this
is not always the case.
2. Stabilized NOI is arrived at using rental rates, vacancy and in future cash flows or investment risks (or both). It may be
collection loss rates, and operating expense data for other com- based on current (and often incomplete) information.
I
parable properties in the market area (Figure 2). Comparables nvestors sometimes think, “If the market looks good today,
should also have similar physical and locational characteristics it should be even better tomorrow,” or vice versa. The argu-
and future income expectations. Stabilized NOI is an assump- ment is that not all investors act rationally, and biases in
tion of how a subject property should perform under “normal” their beliefs about the future convince them to invest based on
market conditions based on similar properties’ performance. past performance.
The level of risk For example, consider the following scenario. Rational inves-
associated with Figure 1. Estimating Market Value tors exit the market when they believe prices have become too
each comparable’s Using Direct Capitalization high relative to expected rents, leaving market-clearing prices
sale price must to be determined at the margin by overly optimistic investors.
Net Operating Income
also be similar to Market Value = Unrealistic expectations for future rent growth results in in-
the subject. Risk Market Capitalization Rate creased capital flows to real estate from the optimists. Property
is often assessed sales prices rise.
by investigating each comparable’s tenant credit ratings, in- The high prices (and low cap rates) produce increased new
come stability and assumed up- or downside potential. Overall construction that eventually leads to lower, not higher, real
market conditions should be considered in the risk estimation rents. Unrealistic market sentiment produces meager returns
as well. for the optimists as market rents return to lower, historical
Certain nonrecurring costs such as leasing commissions, means.
tenant improvement allowances, replacement reserves and By weighing historical conditions too heavily, investor senti-
lease turnover vacancy must be treated consistently when ment can play a part in overpricing commercial real estate.
calculating NOI for all comparables and the
subject. Some investors may expense one or Alternative Ways to Estimate
Figure 2. Estimating Net Market Cap Rates
more of these costs before NOI is calculated.
Operating Income
The result will be a lower NOI, leading to a Ideally, cap rate data would always be based
reduced property value. Potential Gross Income on a large number of constant-quality proper-
– Vacancy & Collection Loss
ties with identical lease terms. In reality, such
Estimating Market = Effective Gross Income
conditions are highly unlikely.
Capitalization Rate – Operating Expenses
Problems can occur when true comparables
A
= Net Operating Income
capitalization rate is a simple ratio of are not available. The capitalization rate must
property NOI to its price or market then be derived from “best available” com-
value, similar in concept to a price-earnings ratio for a parables to produce a value estimate that reflects the correct
stock. Estimating the market capitalization rate requires divid- market expectations.
ing each comparable property’s NOI by its reported sales price. Subjective adjustments would be required to force proper-
After obtaining the capitalization rate for each comparable, ties that are not truly comparable into resembling ones that
an “appropriate” cap rate for the subject property must be cho- are. The adjustment process is particularly tricky in the early
sen. The rate should be based on the comparable most similar stages of a distressed market when few, if any, properties may be
to the property being valued, not an average of all the compara- trading.
bles’ cap rates. Alternative
Theoretically, Figure 3. Estimating a Market Capitalization Rate Using Band of Investment methods of
concerns about Cap Rate = (Mortgage Constant × Loan to Value Ratio) + (Equity Dividend Ratio × [1– Loan to Value Ratio]) estimating the
capitalizing market capital-
a single year’s NOI are eliminated by deriving the mar- ization rate are often attempted in markets where few transac-
ket capitalization rate from comparable sales. Buyers who tions are occurring. Two of the most popular alternatives are
expect future NOIs to increase (or decrease) for any reason the band of investment and investor survey methods.
or combination of reasons should pay prices reflecting those
expectations. Band of Investment
All such expectations should be captured within the com- Because most commercial properties are purchased with debt
parables’ estimated capitalization rates. The subject property’s and equity capital, the overall cap rate must satisfy the market
value will then reflect these market assumptions to arrive at return requirements of both investment positions.
an accurate value conclusion. The band of investment calculates weighted average re-
“Investor sentiment,” a wild card, may play a role in the turns to debt and equity based on market information for each
estimation of real estate prices. Investor sentiment has been component (Figure 3). Primary inputs are the annual “mortgage
defined as a misguided or irrational belief regarding the growth constant” and the annual “equity dividend rate.”
3. C
The annual mortgage constant is defined as the ratio of the apital markets have had a more radical change. Prior
annual debt service payment divided by the total initial loan to the 1980s, commercial real estate was primarily
amount. The equity dividend is estimated by deducting the an- financed by local lenders. Changes in the supply of and
nual debt service payment from the first year’s NOI and divid- demand for capital were more measured. Properties were kept
ing the result by the original equity investment. It is the equity in local lenders’ portfolios, and volatility in capital markets
investor’s anticipated first-year cash-on-cash return. was comparatively low.
The survey technique is applicable only when sufficient mar- Capital market forces can now easily overwhelm property
ket data is available to extract accurate equity dividend rates. market fundamentals. Since the 1980s, globalization of capital
When market data is scarce or less reliable, band of investment flows and the securitization of real estate debt have worked
should only be used as a test against cap rates derived using together to dramatically increase the volatility of real estate
comparables. capitalization rates. As a result, capital markets have become
commercial real estate’s best friend or its worst enemy.
Investor Surveys In the mid-1990s, public real estate investment trusts (RE-
A
ppraisers and investors often use surveys to supple- ITs) stepped in to provide enormous liquidity to ailing com-
ment cap rate data derived directly from transactions mercial real estate markets. A relatively high, consistent rate
or when no other direct data is available. of return from the REITS enticed investors to provide the nec-
Investor surveys are completed on a periodic basis by several essary funding that jump-started the ailing property markets.
large and respected real estate valuation and consulting firms. More recently, the story has been much different. Beginning
The surveys are intended to reflect investor expectations. in 2002, cap rates for all property types began to decline. Apart-
Examples include the Korpacz Real Estate Investor Survey pro- ment cap rates were 8.7 percent in first quarter 2002. By second
duced by Price Waterhouse Coopers and the RERC Real Estate quarter 2007, they had declined to 5.7 percent, according to the
Report and Viewpoint produced by Integra Realty Resources. RERC Investor Survey.
Investors accepted lower yields from
commercial real estate despite a sharp dete-
Since the 1980s, globalization of rioration in market conditions and property
earnings. As a result, cap rate compression
capital flows and the securitization of (lower cap rates) completely overwhelmed
the negative effects of falling property in-
real estate debt have worked together come (lower NOI) until late 2007.
Years of easy credit and high liquidity had
to dramatically increase the volatility created the expectation that commercial
real estate would always produce adequate,
of real estate capitalization rates. steady returns. Credit markets seized al-
most overnight as the true risk was discov-
ered to be much higher than imagined.
Investor surveys usually report investors’ expectations for Capital market forces clearly dominated property market
several different property types. A major limitation is that they forces during these two most recent real estate market down-
are designed to report more general expectations rather than turns, but with very different results.
the expectations for a specific property in a specific market.
Correct use of survey data also hinges on one additional What’s to Come?
F
piece of information. The survey must state whether any of alling property values in 2008 reflected only one adjust-
the respondents recently acquired properties at the cap rates ment to reconcile prices with buyers’ increased capital
reported. In the absence of that information, the assumption costs brought on by the credit crunch. With the current
must be made that the low end of the reported cap rate range recession in full swing, property income has also begun to
(not the average) is the point at which property acquisitions are decline. This will continue to exacerbate the decline in com-
actually occurring. mercial real estate values.
In the absence of high-leverage buyers, equity investors going
What Affects Direct Cap Formula?
L
forward will press for even higher cap rates to justify the risk
ooking at the components of the direct capitalization of low-leverage deals. How long current property owners will
formula, a primary driver of changes in NOI is an adjust- wait for prices to recover is still open for debate.
ment in the property markets, such as an increase or
decrease in market rent or vacancy. Dr. Hunt (hhunt@tamu.edu) is a research economist with the Real Estate
An important driver of change in cap rates is movement (a Center at Texas A&M University.
change in supply or demand) in the capital markets. This effect
is evident in the band of investment formula discussed above, THE TAKEAWAY
in which current capital market conditions play a significant
role in influencing market cap rates. Determining the market value of commercial real estate
Changes in the property markets still play out relatively can be difficult. Direct capitalization is one method of es-
slowly today. The speed at which new supply can be construct- timating values, but it requires accurate income estimates
ed is still quite lengthy, generally taking months or even years and market capitalization rates to produce a meaningful
to complete. The demand for commercial space can adjust property value.
much faster.
4. MAYS BUSINESS SCHOOL
Texas A&M University http://recenter.tamu.edu
2115 TAMU 979-845-2031
College Station, TX 77843-2115
Director, Gary W. Maler; Chief Economist, Dr. Mark G. Dotzour; Communications Director, David S. Jones; Managing Editor, Nancy McQuistion; Associate Editor,
Bryan Pope; Assistant Editor, Kammy Baumann; Art Director, Robert P. Beals II; Graphic Designer, JP Beato III; Circulation Manager, Mark Baumann; Typography,
Real Estate Center.
Advisory Committee
Ronald C. Wakefield, San Antonio, chairman; James Michael Boyd, Houston, vice chairman; Mona R. Bailey, North Richland Hills; Louis A. Cortes, China Grove;
Jacquelyn K. Hawkins, Austin; Joe Bob McCartt, Amarillo; D. Marc McDougal, Lubbock; Kathleen McKenzie Owen, Pipe Creek; Barbara A. Russell, Denton;
and John D. Eckstrum, Conroe, ex-officio representing the Texas Real Estate Commission.
Tierra Grande (ISSN 1070-0234) is published quarterly by the Real Estate Center at Texas A&M University, College Station, Texas 77843-2115. Subscriptions
are free to Texas real estate licensees. Other subscribers, $20 per year. Views expressed are those of the authors and do not imply endorsement by the
Real Estate Center, Mays Business School or Texas A&M University. The Texas A&M University System serves people of all ages, regardless of
socioeconomic level, race, color, sex, religion, disability or national origin.