Commercial Property Analysis: Use Real Numbers

Are any of you catching the Australian Open among all of the Superbowl Hype and College Basketball Overpromotion? There was a great match between Roger Federer and Tomas Berdych this weekend. Berdych jumped out to a 2 set lead with blazing strokes and looked like he was going to eliminate Federer in 3 sets. As it turned out, “The Fed” waited for his opportunity, won the 3rd set, and proceeded to win the match.

More interesting than the comeback was that in the post-game interview Federer stated very calmly that he always believed that he was going to win the match and that it was his mental game that had improved significantly in the last year. And this from perhaps the best player ever in the game of tennis! How is your mental game? Do you believe that there are opportunities out there for you? We do.

Are you using real numbers in your commercial property analysis? When in a declining market, as we find ourselves today, commercial real estate investors often use income and expense numbers that haven’t caught up to that reality. This is a normal mistake, but one that should be corrected prior to making investments or seeking financing.

Lenders use the higher of market or actual vacancy and the former can be shockingly high. Investors also often forget to adjust income for replacement reserves, leasing commissions on expiring leases, and use realistic management expenses. Making these corrections ahead of time in your property analyses can save an investor from getting into a problem transaction or from starting a loan request that will not finish successfully.