The internal rate of return (IRR) is a widely used investment performance measure in finance, private equity, and commercial real estate. Yet, it’s also widely misunderstood. In this article, you’ll learn: What is Internal Rate of Return (IRR)? The internal rate of return (IRR) is a financial metric used to measure an investment’s performance. The …
The breakeven occupancy ratio is one of the less frequently used 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 investment commercial real estate loans. In this short article we discuss how the breakeven occupancy ratio works, why it’s …
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 …
Understanding the commercial real estate loan underwriting process can give you an advantage when seeking debt financing for a commercial property. In this article, we’ll discuss how lenders underwrite commercial real estate loans, and how to determine the maximum loan amount for a property. Before a new loan goes through the full underwriting and credit …
It’s common in the commercial real estate industry to use leverage, which means acquiring a property with debt rather than paying all cash. Positive leverage occurs when debt increases an investor’s rate of return. Negative leverage occurs when debt decreases an investor’s rate of return. At a high level, these leverage concepts are easy to …