Understanding the Importance of Verifying Operating Expense Line Items
When considering a commercial real estate investment, one of the first things that an investor will do is to ask the seller (or their representatives) for a series of documents. Typically, these documents include: prior year financial statements, property tax bill, utility bills, a rent roll, property management contracts, and insurance policies. Once received, the […]
Typical Assumptions Used To Create a Commercial Real Estate Proforma
In its most basic form, the business plan for a commercial real estate asset is to purchase a property and lease the space in it to individuals and businesses. The resulting rental income is used to pay for the property’s operating expenses (including debt service), and anything left over is distributed to the property owner(s). […]
Loss to Lease vs Property Vacancy: What is the Difference?
The term “commercial real estate” or “CRE” is used to describe a class of real estate assets that are purchased with the intent to earn a profit from income, capital gains, or both. This class of assets includes four major rental property types: industrial, retail, office, and multifamily and, although the use case for each […]
Understanding the Internal Rate of Return
Fundamentally, the idea of making a commercial real estate investment is a simple one. An individual contributes a certain amount of capital towards the initial cost of an investment property. In doing so, they expect that they will receive their initial investment back, plus a return over time. Prior to making an investment decision or […]
What is the Debt Service Coverage Ratio?
Nearly all commercial real estate transactions are financed with some combination of debt and equity. The equity comes from the potential property owner and/or their investors while the debt comes from a bank or non-bank lender. The exact amount of each can vary by transaction, but equity typically consists of 15% – 25% of the […]
Commercial Real Estate Investment Analysis – Are the Numbers Real?
Every commercial real estate (“CRE”) transaction in the United States follows a similar lifecycle, a property is discovered, a significant amount of due diligence and underwriting is performed to ensure the asset is investable, an offer is made, and the transaction is closed. While each of these phases of the transaction is important, perhaps none […]