Walk through of First Commercial Property Valuation?

Question

Hi I posted something earlier about a commercial property valuation, and the responses I've received have been to hire a commercial broker to do this for me. However I was hoping that someone could walk me through creating the valuation myself. If so please respond on here and I'll  post all of the information I have on here. Thank You.

Dan Cho · Answer

hi all thanks for your input. Got all the details from seller and have decided to proceed with purchase as the numbers make sense and I got a cap rate of 8%

Tony Nguyen · Answer

@Dan Cho I think we all want to help, but those scanned images are going to make it difficult for most people to chew on for you, or maybe just me. Let's start with the back of the napkin approach since you don't have much time:

lease type? (full service, gross, nnn, etc)gross income?expenses?reimbursable or not?net income?deferred maintenance? what's your plan with the property? what's your goal?

Dan Cho · Answer

I'm sorry for the delay in response. I've just been so busy with this loan and dealing with the town building department. I've included what I think is relevant information. Do you think I can use the bigger pocket calculator to come up with a value?

Dan Wallace · Answer

@Dan Cho if you would like to post the details that may be helpful. Appraisals, regardless of whether they are for residential or commercial properties, all must generally address the three approaches to valuation: Sales, Income and Cost. Commercial valuations are just more involved since more detail is generally given to the Income approach. However, in my opinion, the most difficult valuation approach is Income since there are more factors such as vacancy, expenses, rent escalators, capital improvements and almighty CAP rate.

The key to any appraisal is what assumptions are being used in the valuation process. This is why valuations can vary widely.

Best of luck and let me know if I can help.

Mike Garland · Answer

Dan,

Depends also on why you want one.  If you plan on doing any type of conventional borrowing, I would suggest that you prepare your evaluation based on what the FDIC expects from the banks concerning real estate evaluations (loans $250k or less can forgo the expensive real estate appraisal and get a commercial real estate evaluation instead - assuming one can be constructed).   While one that you do yourself will not be able to be used by the Bank, it will at least allow you to evaluation the property based on those guidelines the FDIC expects.  https://www.fdic.gov/news/news/financial/2010/fil1...

Richard Copeland · Answer

Dan,

What kind of property is it?  The valuation process is basically the same for most commercial and multifamily real estate properties, but each one has it on intricacies.