Comments (16)

Oct 1, 2016

Think of homes. Same floorplate, same exterior, but why does one sell for more? Location, upgrades, larger lot, better for kids, whatever it might be. Same ideals follow most CRE.

I have home in my neighborhood 2-3 houses apart that are structurally identical but sell for +- 20% for these reasons.

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Oct 1, 2016

Different income streams, different expenses, different credit of the tenants.

If ALL is the same then maybe it's a zero cash flow sale vs a market sale.

Kind of a vague question.

Oct 1, 2016

And would these differences be reflected in the cap rate? Property w/ higher valuation would have lower cap, right?

Oct 1, 2016

Well, they could have the same cap rate if the property with the higher valuation had a higher net operating income. But if the NOI is the same then, yes, you're correct.

Oct 2, 2016

Homework question? Either way, even if they are on the same block and have the same structure, they are not the same building. No property is identical to another.

Plus, commercial properties are valued on cash flow, not location and architecture.

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Oct 3, 2016

my thought exactly...

Oct 2, 2016

The most basic answer would be based upon the NOI. If you have two completely identical buildings with expenses of $1M each and for any reason building 1 is netting $2M and building 2 is netting $1.5M you will have a difference in sales price. If tenants, leases and structures are similar, but cashflow differs as mentioned previously - assume a 6% cap on each building. Building 1 would sell for $33.3M & Building 2 would sell for $25M.

That's the beauty of commercial, you can create value almost instantly vs. residential where things are typically done based off of comps etc.

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Oct 3, 2016

By structure I assume you mean consistent floor plans, building material, use, zoning and attached adjacencies

-lease maturation
-contract services
-creditworthiness of tenants
-property manager/leasing agent
-current occupancy
-age
-utilities and taxes (just because they are located on the same block doesn't mean they are in the same county)
-tenant recovery structures

Oct 3, 2016

If two properties are exactly identical in every single way, including zoning, lot size, ownership, age, exact location, then sure they'll theoretically have the same value.

Problem is no two properties are ever the same. It's difficult to answer this question because we don't know what assumptions make two properties "identical".

Oct 3, 2016

A dead body was found once in the other property.

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Oct 2, 2016
vik2000:

A dead body was found once in the other property.

Sounds like an additional income opportunity to me. Tack on a "culture & history" premium to the property where the death occurred and charge even more for ghost tours after business hours.

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Oct 3, 2016

Supply and demand!

Oct 3, 2016

Just wanted to point out that this question came up in another thread. Some good info was previously provided:

http://www.wallstreetoasis.com/forums/two-superday...

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Best Response
Oct 3, 2016
investREanalyst:

...
Different access points
turning lanes,
street lights,
traffic counts...
One building can have much more attractive transferable debt
Tenant Roster
Space allocation
Valuable/Less-Valuable lease structures
Reimbursements, tenant roll, termination rights
Leaner operations
Walkable amenities - or even on-site amenities for an office building (cafe, gym, cleaners, day-care, etc...).
The 'street' can be a freeway that you cannot really walk across
Different Zoning
Environmental - Cleaners and Gas Stations can play a role into this
Parking can certainly come into play
Many more too...but I think the major ones have been listed

And:

Might sound silly, but one side of the street could get better sunlight. This can be huge. Also, even more obvious than the first point, the views the building has. You could have 2 exact buildings, exact tax structure, exact everything. But if one building's views are obstructed, you better believe the one with unobstructed views will command higher rents & be more valuable.

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Oct 4, 2016
Comment
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