Pick a small commercial property that you see in your everyday travels around town wherever you are. Pick an apartment complex of ten units or less (duplexes are fine), an office property with one or two tenants, a strip center with one to three tenants, or a warehouse property where the rental spaces are all the same size. Look for one that has some vacancy because then you will have the phone number of someone to call to get some property details.   For an apartment property most of the information will be available on free websites for apartment investors or the listing broker’s website if the place is for sale. Cite your sources here. If you use information from an agent you don’t have to give the name, but give the firm name. 

Basically, the assignment asks you to appraise the property using the data from comps and using the Akerson capitalization method.  You will have to do some research on actual rents in recent months and make assumptions on average vacancy rates once the economy recovers and typical expenses then.  

First: use information from Costar, or any other published source, to find at least five comparable properties that have sold recently. Look for information on the selling price per square foot basis. Find pictures and age and location data for each comp. Use your judgement to weight the price per square foot for each comp by how similar you think it is to your target property (distance, location, age, style and amenities all matter). DO NOT AVERAGE. Use Costar to show the comps and the target on a map, or do your own map once you have the comps selected. The judgement part is the most important part here. Explain your weighting for each comp. After you weight the comps use the weights to get an estimated price per square foot for your target property and compute its estimated value. (25 Points)

Second: estimate Gross Market Rent for your target building. Use information from Costar, or any other published source, to find at least five comparable properties that have lease quotes.  Find pictures and age and location data for each comp. Use your judgement to weight the rental per square foot for each comp by how similar you think it is to your target property (distance, location, age, style and amenities all matter). DO NOT AVERAGE. Use Costar to show the comps and the target on a map, or do your own map once you have the comps selected.

Third: construct an annual Pro Forma for your building from Gross Rent to NOI. Justify each assumption. Cite your source for the expense and rental information. Agents are really good sources for this. Think about Potential Gross Rent, typical vacancy, additional revenue sources such as parking or vending, and typical operating expenses. The Cash Flow Projections posted on the website will give you expense percentages for big projects of the same type as yours if you can only find gross rent. There are some economies of scale so be conservative with your estimates for smaller projects. Depending on the property type, Costar may have gross or net rent information and may also have expense information. (25 Points)

Fourth, make the additional assumptions needed to complete the Akerson valuation, justifying each assumption and showing the math for each calculation. (25 Points)

IMPORTANT: your properties are not going to be anywhere close to core properties so your loan rates will be higher than what is shown on the JLL Capital Markets Overviews for core properties. Also, you need to set a required return on equity that compensates the owner for the risk of the residual equity position. Use Matt Shore’s handout. Again, this will be much higher than the typical core properties.  If your loan rate or your required return on equity is too low or your appreciation rate is too high the Akerson formula overall cap rate gets too small and value explodes… Be conservative

Use the information from the two valuation approaches to settle on a market value for the subject property under normal market conditions. Then, decide if you think it will take six months, one year, eighteen months or two years for your property’s NOI to return to the level in your analysis in the Pro Forma (pre-Corona). Subtract the total foregone NOI from the market value. Call it an Economic Conditions Discount. Explain your logic on the recovery period and comment on which method you have the most confidence in given the quality of the data you have been able to find. (10 Points)

Format your report in a professional manner. Appearance, writing style and cohesiveness count for 15% of the overall grade on the project. Write sub-headings to separate major components of the project. I would guess it will be 5 to 8 typed pages. It would be nice to include a picture or two of the site, and a site map, as well. (15 Points)    

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