If you were evaluating 2 strip centers each 15,000 s.f. Income and expenses being equal, everything equal except the construction.
One a block building and the other a metal building, how would you determine the value and why?
Commercial property like this is usually done by the income approach.
It’s NOI/cap rate = value.
So, NOI = net before paying mortgage. Remember, this is done PRO FORMA, not actual. So to calculate NOI you take what should be the gross potential income, subtract typical vacancy, subtract all typical expenses, including management, accounting, etc
Cap rate is what typical properties in the area of this nature usually perform at (eg, .08 or 8% cap)
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Ok I understand that, so under the income approach both would be the same, but structure wise they would nor be, right?
[QUOTE=OhioBill;893114]Ok I understand that, so under the income approach both would be the same, but structure wise they would nor be, right?[/QUOTE]
If the income was the same, the appraisal different would be negligible. Commercial appraisers do look at replacement value, construction, comps, etc in their calculation, but mostly they lien on the income approach.
as an investor though, I feel there is a difference between metal buildings and block, and even though the same now, in the future, one is going to out live the other
More important to the success of a strip center than the type of building is the tenant mix and is it on "The going to work…or…going home side of the street.
If you notice, most of the fast food, donut shops, drive thru industry, etc are on the going to work side and professional offices are on the going home side.
something to think about.