How can I value an office building when there are no good comparables?

I am working with a prospective client to value his office building for sale. It is in a rural residential area. I can not find anything vaguely comparable in the same town, county, neighboring county nor in the whole state to his building. What is my next step in valuing the property?
In Selling Property - Asked by Peter M. - May 10, 2014
Report Abuse
Answer this Question

Answer(s)

Frank E.
Property/Asset Manager
Pittsburgh, PA

You should value it based on the net income. There are plenty of resources on the web to tell you how to do that.

May 11, 2014
Report Abuse
John C.
Broker/Agent
Sparta, NJ

Use your network of Commercial Appraisors to break it down to SF sale and lease price. Get a pro forma to project the value using the NOI via capitalization rate.

May 14, 2014
Report Abuse
Glen W.
Lender/Mortgage Broker
Atlanta, GA

The income approach is the best option (NOI/cap rate), the cap rate will need to be adjusted higher since the property is unique (as opposed to a walgreens). I think that there have to be comparables in the area, for example I did a loan in a small town in CO (craig, co) and was able to locate comparables for the property. The comps might not be exact, but close is better than nothing since whomever is going to purchase the building likely will need financing (the lender would require sales comparables)

May 16, 2014
Report Abuse
Karen C.
Broker/Agent
Cape Vincent, NY

Net income will give you a starting point as to how to value the property. Just pay attention to what a seller would be looking for, as far as the investment is concerned.

May 16, 2014
Report Abuse
Richard M.
Broker/Agent
New York, NY

You can value the property base on the cap rate. Just divide the NOI by the purchase price and that will give you the cap rate. Just note that the cap rate usually does not included debt service. You need to know what type of cap rate is your investor looking for.

May 16, 2014
Report Abuse
Anthony C.
Santa Barbara, CA

First: There are never "good comparables". The real value in an appraiser's opinion (or a broker's) of value comes from the research, analysis and development of adjustments to comparables. If a broker went about trying to value an office building with good comparables (sans adjustments) as the only practical method, and proceeded to give advice to his client, he should first check to be sure his E&O is up to date. You always need to analyze the degree of superiority and inferiority of comparables compared to the subject.
Second: You are somehow under the impression that the only way to value a property is the market approach. You are forgetting the income approach. -income divided by rate = value.
TEDESCO Appraisal & Valuation
Santa Barbara, California

May 23, 2014
Report Abuse
Chuck G.
Broker/Agent
Dallas, TX

The brokers that have responded, gave you great advice regarding your question of ascertaining property value. I would add that you should consider replacement value. If you use an appraiser make sure you get a replacement value included in his report. This will be helpful when negotiating with a potential buyer.

Jun 17, 2014
Report Abuse
Philip C.
Broker/Agent
Atlanta, GA

First, is the building 100% leased? If so, the building should be valued based on the income. I see several answers here that reference NOI but don't explain what that is. NOI is the Net Operating Income which is determined by taking the Gross Income and subtracting operating expenses paid by the landlord such as property taxes, property insurance, property management fees, landscaping, common area lighting, garbage removal, etc. Do not include your debt service (i.e. - mortgage payment). Once you have determined what the NOI is, divide it by the Cap Rate (rate of return) that an investor would expect to receive if they bought it. The answer is the Sales Price.
If the building is not leased, you will need to input an expected rental rate instead, and use the same formula - NOI / Cap Rate = Sales Price.

May 4, 2015
Report Abuse

Welcome to Answers

LoopNet Answers is where the commercial real estate community shares what they know to help each other out. And it's all for free.

Ask a question to get advice from brokers, investors, professionals and local experts.

Answer questions to raise your visibility as a trusted advisor and build new relationships.

Ask a Question

Post Question