The topic of replacement reserves is often confusing for commercial real estate professionals. How much should be set aside for replacement reserves? Should replacement reserves be included in net operating income? How do replacement reserves impact cap rates and value? In this article, we’re going to take a closer look at reserves for replacement, clear …
Being completely comfortable with the time value of money is critical when working in the field of finance and commercial real estate. The time value of money is impossible to ignore when dealing with loans, investment analysis, capital budgeting, and many other financial decisions. It’s a fundamental building block that the entire field of finance …
The internal rate of return (IRR) is among the most common metrics used to evaluate performance in finance, private equity, and commercial real estate. It’s one of several key outputs of a discounted cash flow (DCF) analysis. Despite its widespread use, IRR is often misunderstood or misinterpreted. In this article, you’ll learn precisely what IRR …
The breakeven occupancy ratio is one of the less frequently discussed ratios in commercial real estate, yet it’s also one of the most practical and useful ratios to know. It’s also especially important to lenders when underwriting commercial real estate loans. By calculating the percentage of a property that needs to be leased to cover all …
In this article we are going to conduct an investment analysis on a 140 unit apartment building acquisition. We’ll walk through the process of forecasting cash flows and also explain the calculations needed to determine investment value. Read on as we take a deep dive into the world of apartment investing. Apartment Investment Case Study …
Value is traditionally defined as the power of a good to command other goods or services when exchanged. Within this broad definition of value, there are various types of value given to real property, such as investment value, market value, insurable value, assessed value, liquidation value, or replacement value. In this article, we’ll go over …
Understanding Net Operating Income (NOI) is essential in commercial real estate. Without a firm grasp of net operating income, commonly referred to as just “NOI”, it’s impossible to fully understand investment real estate transactions. In this article, we’ll take a closer look at net operating income, discuss the components of NOI, and also clear up …
The broker price opinion (BPO), also known as a broker opinion of value (BOV), is a popular way of estimating the value of a property. Typical reasons for ordering a broker price opinion include estimating value prior to purchase or sale, understanding collateral value when securing a new loan or refinancing, estimating liquidation value, buying …
The gross rent multiplier is a simple measure of investment performance used in the commercial real estate industry. Understanding the gross rent multiplier is important when evaluating commercial real estate transactions, but it also comes with several built-in limitations. In this article, you’ll learn: What is Gross Rent Multiplier (GRM) The gross rent multiplier, often …
Understanding the basics of credit analysis is important when raising debt financing for commercial real estate projects. Credit analysis is one step in the credit approval process a bank goes through to evaluate a corporate borrower, but it also comes in handy when evaluating the financial strength of tenants, corporate guarantors, and other individual operating businesses. In this …