Have you ever considered a commercial investment? Here are some important factors to consider when making your decision.

First of all there are two major decision makers:

• Users are those who make decisions concerning space that they need to use for their business.
• Investors are those who make decisions concerning investment in properties that are/or could be leased to users

The interface of users and investors in the space and capital markets decide market rets and values for commercial real estate. A variety of sources of debt and equity capital, both private and public, are available to finance the purchase of real estate. This allows lenders and equity investors to participate in different ways in performance of real estate depending on their risk tolerances.

Commercial real esate competes with stocks, bonds and other investment alternatives for capital. Investors want to know what returns to expect from each asset class as well as its risk. Investors also want to be sure that information is available to understand the investment.

Before beginning the analysis process for a specific real estate investment property, the investor must understand the geography of real estate and how a specific property fits into a specific market, particularly how the market where the property resides impacts the numbes utilized in a financial analysis of the specific property.

The basis of the financial analysis hinges on the real estate market analysis; the numbers come from the real estate market analysis.

Real estate market analysis seeks answers to questions such as:

• Where are new projects likely to come forward, and what effect could they have on investment decisions?
• Which sub-markets are most defensive from the perspective of supply and demand balance?
• Where are the best opportunities considering risk for the most profitable investment?
• Where are the opportunites within mature, emerging or active markets for specific product types?
• Where are the attractive market niches?
• What specific locations and real esate asset types are likely to experience the greatest level of apppreciation and/or most resilient if the market turns?

All of these questions are answered in the context of political events and societal change. The real estate decision must satisfy conditions of market and competitive analysis, location and site analysis, political and legal analysis, and financial analysis.

Evaluation of financial feasibility depends upon both the data from the real estate market and/or trade area, and financial data arising from markets geographically near or remote from the project site.

the components used in applying the gross rent multiplier and capitalization rate to measure investment performance and/or determine investment value are not impacted by taxes. IRR (IRR is the rate of return each dollar in an investment earns while it is in the investment. IRR is another term for interest rate, discount rate, or yield) is the only measure that requires a complete answer to the four basic questions about any investment:

• How many dollats go into the investment?
• When do the dollars go into the investment?
• How many dollars come out of the investment?
• When do the dollars come out of the investment?

Perhaps the most common real estate decisions that investors face are which property to acquiew and what to pay for it. Investors use varios measures of investment performance and determinants of investment value to inform their decisions.

Back to Home Page