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May 31, 2024
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Brokers numbers are going to be inflated. I can't count how many high 4 cap claims I've seen recently, that were wildly off. For a quick calc you can take the average between the T-12 NOI and Brokers NOI and use that to get a ball park. Adjust accordingly depending how much growth broker is projecting.
Saw an OM yesterday with 3.5 cap based off T12, and 5.2 based off broker year 1 NOI..
T3 income with T12 expenses (tax adjusted) is a good way to look at it.
What is t12?
Trailing 12 months. Refers to the P&L.
As a lender, I use my UW NOI which is based on latest rent roll annualized. I use their year 1 concessions, credit loss but see if it is inline with T-12/historicals, get some color on whats the story there. I use their year 1 expenses but again see if something is off (for example is R&M suddenly 100% less compared to T-12?). Taxes will be higher if there is a reassessment. So my NOI will be a little different than T-12 or their year 1 number.
Use your own analysis. I just looked at a property with an ask of 12mm, I ran the numbers and came back with a max bid of 8mm. Value add is different than a core/core plus acquisition. You need to look at yield on cost against capitalized costs...the costs to get to the new rents.
This is always an interesting question because every company looks at it differently. If you're told it's 5% cap, is it a 5% cap on T12 Income and Expenses, Year 1 proforma, stablized, T3/T12? You see, the answer is, it depends. Many firms will track deals they underwrote and show what the broker claimed, and than have another column showing the Firm's cap rate, calculated in a standardized way each time - that way you know where you were underwriting the deal, how it looks compared to the rest of the market, and when it trades, what that cap rate was based on your numbers as well.
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