Criteria for making decision

1
Criteria for making decision
2
Making a decision

• Rules-of-thumb
• Market Multipliers ?RPF, SPPF, OER
• Income Multipliers ? GIM, NIM, BTCF ATCF
• Rates of return ? OCR, EDR, ATR
• Traditional appraisal
• Market Comparison Approach
• Cost Approach
• Income Approach

3
Market Multipliers

• Rent per square foot (RPF)
• Determine Rent by collecting market data
• The comparables are examined in terms of
• Date sales
• Lease terms
• Lease Options
• Physical Characteristic Age, Location, Size
• Tenant Rating
• Justify the proper lease using the most
  comparable.

4
Market Multipliers Comparisons

• Sales Price per square foot
• determine the price of the property based on its
  size (area)
• Comparison is required based on the previous
  slide.
• Sales Price per square foot SPPF
• Gross Income Multiplier GIM
• Operating Expense Ratio OER

5
Market Multipliers

• Comp 1 Comp 2 Comp3
• Rent per square foot (net) 15.60
  14.20 14.25
• (Income at sales / Net leaseable area)
• Rent per square foot (gross) 14.80
  14.10 13.85
• (Income at sales / Gross area)
• GIM
  5.11 4.90 4.88
• (Sales price / Income at sales)
• OER 40
  38.5 38
• (Operating expense at sales / Effective Gross
  Income)

6
Homework

• Make the comparison Analysis for rental
  comparables. Design your sheet. Then estimate the
  market rent and rates used for analyzing the
  investment
• Forecast NOI under the existing leases for 6
  years. Detail your assumption (if any)
• Calculate the cash flow from selling the building
  at the end of year 5.

7
Constructing a debt service table

• Mortgage Constant
• MC i/m
• 1 - 1
• 1 i nxm

Loan principle 1,000,000 bath at 7 per annum 25
yrs. Monthly compounding. What is the monthly
payment Monthly payment Principal x MC