Did you know that Team Damis is experienced in commercial real estate as well as residential? This month we want to share some insight on how the value of a commercial property is determined.
Commercial appraisals are often more subjective than residential ones, with values dependent upon elements like the current rental market price, fewer available comparable properties, and overall maintenance costs. Here is a quick primer on 6 ways to determine the value of a commercial property, condensed from this article from First Republic Bank.
1. Cost approach Considers the cost to rebuild the structure from scratch, taking into account the current value of the associated land as well as construction material and other costs associated with completely replacing the property.
2. Sales comparison approach or "market approach" Relies heavily upon recent sales data for recently sold buildings with similar properties from the same market area.
3. Income capitalization approach Based primarily on the projected amount of income an investor can expect from a property.
4. Value per Gross Rent Multiplier (GRM) approach Measures and compares a property’s potential valuation by taking the price of the property and dividing it by its gross income.
5. Value per door approach Used primarily for apartment buildings rather than single-unit structures. This method determines the entire building’s worth based on the number of units, not size of each unit.
6. Cost per rentable square foot approach Combines the usable square footage (the space tenants can occupy) with the common areas tenants benefit from, such as stairwells and elevators. It's helpful to compare the cost per rentable square foot to the average lease cost per square foot.
Ultimately it comes down to whether the buyer feels confident about their investment. If you've been interested in renting a commercial space, investing in a space, or selling one you already own, please let us know. Our team would be honored to help you secure the best deal possible. For information on trusted mortgage vendors, including commercial mortgage providers, visit the vendors page of our website.