Commercial Real Estate Valuation

[Jason Ray Richardson]

I've seen several different ways to calculate the value of a commercial building. I believe that it's more based on rents versus looking for comps (like on single family residences). My questions are

1) Is there one method over another that you all would suggest?

2) This building is almost fully occupied however there are some AC units and rood repair that has been put off for sometime. Do you value like you do with the 70% rule in residential real estate. ARV X 70%- repairs= offer?

[Wells Mangrum]

Commercial real estate is often valued by capitalization rate and net operating income (NOI).

Building value = NOI / Cap rate

NOI = gross income - expenses

Where “expenses” does not include financing expenses.

Cap rate is determined by market variables including local and global economics, building quality, land value, lease value . . .