Evaluating Vacant Commercial Property Value

[Bill Goodland]

So I understand cap rates, NOI, and how they both affect the value of a commercial property. For example, a building at 50% occupancy would significantly raise the NOI and thus value of a property. My question however is, how does one evaluate the value of a property if it has been vacant for an entire year and essentially has a negative NOI? I'm assuming you can't really utilize current NOI, so would one go off a combination of comps, percentage of previous NOI and value of the land? Thanks!

[Edward B.]

@Bill Goodland, property is valued using three different approaches; the Sales Comparison Approach, the Income Capitalization Approach, and the Cost Depreciation Approach. When an appraiser appraises the property, they will do all three and weight them accordingly based on the type of property and strength of the data. Typically, commercial property is valued with the most weight going to the income capitalization approach because that is primarily how those properties are bought and sold. So, you can estimate what you believe are accurate income and expenses for the property or you can utilize one of the other approaches if the data is stronger.