How do you price commerical building if I occupy 50% of building?

I keep rents low only because $1 is better than No Dollar.
In Selling Property - Asked by Patrice C. - Dec 8, 2009
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Steve M.
Plano, TX

You would have to value it on the rent that you get from the other 50% and price your rent at the same level if you were to sell to an investor. If you don't have it leased you would need to compare the potential rents to other vacant space that is similar to yours in the area. I say to use vacant space as the measure due to today's new leases potentially being offered at lower prices than current leases on similar buildings. You could use current rents on similar buildings but that would not give a buyer (if you are selling) any comfort as rents could be down a considerable amount.
Once you have the rents and the type of leases offered- i.e. triple net, industrial gross, etc. Then you would look at CAP rates of similar assets in the area and where they are selling. You can get a pretty good estimate of value that way.
Hope that helps,

Dec 8, 2009
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Jay N.
Property/Asset Manager
Houston, TX

It depends on what you are doing. If you are downsizing, are buying, have the opportunity to buy the buidling you lease in. It certainly is a buyers market today largely driven by the capital markets. As an owner occupant, there are SBA options for you to buy and get ver favorable financing. That being said, the vacant space would be valued at a deep discount in todays market. the cost to lease it, the time to lease it and cap rate are all variables that are very submarket specific and subjective. The definition from the Appraisal Institute of value is what a willing buyer and a willing seller will transact. Will the seller provide financing to preserve its value? With the supply (those desiring to sell) far outnumbering the demand (buyers), I am seeing things sell for as little as 10% of replacement cost and am looking at a lot of high quality opportunities

Dec 9, 2009
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Paul F.
Elk Grove, CA

To piggyback on Jay's response, I would also offer that there is a big difference, in today's market, between a "willing" and "capable" buyer. Purchase debt, other than owner user debt, is difficult to find. This changes the demand side of the game, which empowers the owner/user buyers and all cash buyers. Increased projected CAP rates and lower prices are the result. I am consulting with many of the regional and national banks on their distressed properties based on both my development and brokerage background. There is a clear and very much overlooked, impact of what I call "capable demand" and its impact on value.

Dec 9, 2009
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Fort Lauderdale, FL

I would add a few additional factors:
1. Size of the building, zoning ect??
2. Financials of your business and type of the business, main factor of your lease back guaranty.
3. Type of the Buyer available/demand (i.e. owner user, investor)
4. Most importantly, what you want to achieve and how quick: pay debt, cash out to improve your business or other oporunities, time frame and emergency behind, runing out of depreciation etc

Dec 11, 2009
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Brandi L.
Oak Brook, IL

From an investors perspective, the price will be a function of the income. Your objectives become paramount and you have the ability to use your lease as an instrument to give yourself either lower rent OR a higher sale price.
(630) 990-8657

Dec 11, 2009
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Gregory G.
San Francisco, CA

CAP rate based on the rent from the other 50%.
Gregory Garver - Commercial Real Estate Broker
Broker License# 01716531

Mar 5, 2010
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