Commercial Appraisal Help

Published on September 29, 2019

Commercial Appraisal Help

A commercial real estate appraisal differs quite a bit from appraisals done for residential properties. Value for a commercial building is based on the rentals received relative to the expenses paid out. The underlying asset is important, but not even close to the same way that a residential properties value asset.

In recent months our loan clients have asked many questions on how their property, and/or acquisition will be affected by the occupancy. The answer is: NOI (net operating income) means everything!

I can speak to this with some authority as I ran the appraisal department for my first employer – a regional bank. A commercial appraisal still contains the 3 value approaches (direct market comparison, cost reproduction approach and the income approach). As most things in business have to make sense the underlying premise is that there is no intrinsic value to an income producing property than the earnings stream. I could write an epistle, but, for brevity and time savings, here’s what you’ll focus on. Feel free to email me with any questions about your property.

Key factors will be:

• Longevity of leases

• Diversity and continuity of income

• A tenant with a disproportionate percentage of space must be carefully evaluated

• Each tenant will be looked at for credit standing and an estimated of future performance

• Environmental survey and any remediation that must occur

• Engineering report to identify deferred maintenance

• Reserve for replacement from said engineer.

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