How do I value a 100% occupied warehouse?

366,000 sq ft warehouse
$1,320,000 net per year with an avg of 5 years left on leases
25,000 ft is climate controlled; 16,000 of office space
no renovations needed
In Selling Property - Asked by Debra W. - Mar 1, 2010
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Answer(s)

John B.
Broker/Agent
York, PA

Three ways commonly used to value a property - comparable sales approach, income approach, and cost approach. Comparable sales approach looks at recent sales of similar properties, makes adjustments for differences, and arrives at a common metric (e.g. price per square foot.) The income approach uses capitalization of the annual net operating income to calculate a value (Income=Rate*Value). The appropriate Capitalization Rate (Rate) to use will depend on your area and the quality of your leases. Finally, the cost approach looks at the expense to reproduce or replace your property, minus applicable depreciation. The cost approach is used less often and is more appropriate in the absence of comparables and operating income.
So you answer should be a blend of the comparable sales approach and income approach, with more weight given to the method that has the stronger data behind it.

Mar 2, 2010
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Mark R.
Broker/Agent
Syracuse, NY

You would look at what Capitalization rates other industrial deals are trading at in your market, then divide the net income by that cap rate. I would be happy to assist you. Mark Rupprecht, CCIM; CB Richard Ellis 315-422-4200

Mar 2, 2010
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Mike B.
Broker/Agent
Willowbrook, IL

Typically an exist cap rate is applied to the net rent depending upon numerous factors, including location, asset quality, and tenants credit. You will also want to take into account the market value of the leases in place. Clearly, climate controlled space and office space is more valuable than warehouse space. Between mid $30's/ SF to $50/SF, depending upon all the above referenced variables.

Mar 2, 2010
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Andrew G.
Lender/Mortgage Broker
Sarasota, FL

You can look at it from two sides: the seller and the buyer. The seller will probably take the easier approach and simply divide the yearly NOI by the market rate of return (i.e. $1.32MM/market ROR) to get a current value. As an investor/buyer I would look at the following: financial strength of the tenant, likelihood to renew (any renewal options, etc.) and then include a premium or discount to my rate of return. The riskier the deal (as in shorter term), the higher the rate of return.

Mar 2, 2010
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Gregory G.
Broker/Agent
San Francisco, CA

I would take an average of cap rate and price per foot.
Gregory Garver - Commercial Real Estate Broker
Broker License# 01716531
(415)225-9894
gregory.garver@gmail.com

Mar 5, 2010
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Blanchard P.
Broker/Agent
Addison, TX

I thought all of the responses were excellent. Based on the wording in your question, this is not single lease, it involves multiple leases. In addition to cap rate, my concern for a 100% occupied property is that they may not remain 100% occupied. For that reason, you may want to consider a percentage for a vacancy factor in your analysis. Check with your lender to determine what figure he will use in underwriting a loan on the project.

Mar 9, 2010
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Chris G.
Broker/Agent
Edison, NJ

At $3.60 psf NNN, I would base today's value of rent on the credit quality of the tenant as being the most major importance. Secondly, looking at the asset, in which state it is in and how many other bldgs. are available of this size and use and is the rental rate below or above market.
20 other questions would have to be answered but those are major ones.

Mar 9, 2010
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