Net Present Value (NPV) vs. Internal Rate of Return (IRR)
Two commonly used commercial real estate metrics are the Net Present Value (NPV) and Internal Rate of Return (IRR). The calculation of these metrics has some overlap so it is critically important to understand the difference between them and how they contribute to the ultimate investment decision. What is the Net Present Value? NPV is […]
Understanding the Difference Between IRR and XIRR In Commercial Real Estate
When evaluating the performance of a commercial real estate investment, there are a number of metrics that are traditionally used to measure returns. One of the most common is called the internal rate of return. By definition, the Internal Rate of Return (IRR) is the discount rate that sets the Net Present Value of a […]
Three Drivers of Commercial Real Estate Prices
Commercial real estate investment returns come from two sources, rental income and price appreciation. To achieve large amounts of both, commercial property investors need to have a detailed understanding of what drives each higher. In order to understand how the below drivers impact commercial real estate prices, it is first necessary to review how commercial […]
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 […]
Should I Sell My Commercial Property? When is the Right Time?
Much of the literature on commercial real estate (CRE) analysis tends to focus on the analysis required before a property is purchased. While this is incredibly important, it is only part of the story. The sales price is just as big a driver of returns as the purchase price. But, it tends to be overlooked. […]
What to Look For in a Commercial Real Estate (CRE) Rent Roll
During the pre-purchase due diligence phase of a commercial property investment, it is common for an investor to ask the seller for a number of documents and reports. Among them is an important document commonly referred to as a rent roll. In order to understand why a rent roll is important, it is first necessary […]
Economic Vacancy vs. Physical Vacancy: Definitions & Calculations
One of the most important line items in any commercial real estate proforma is the property’s vacancy rate. However, vacancy rate is a commonly misunderstood term as there are actually two types of vacancy: physical vacancy and economic vacancy. In this article, we’ll define physical vacancy and economic vacancy, show how to calculate them, and […]
What Does a Commercial Real Estate Lender Look for in a Loan Request?
To many, the criteria that a lender uses to approve a commercial real estate loan is a mystery. In reality, loan approval criteria are fairly straightforward. What can cause complications is the fact that they are a little bit different for each lender and highly dependent on the property type and current economic conditions. Despite […]
Underwriting in a CRE: What Are The 5 Most Important Underwriting Inputs?
Prior to making a commercial real estate investment, one of the most important tasks on a real estate investor’s to-do list is to create a financial projection of the property’s cash flows and Net Operating Income (NOI). This process is known as “underwriting” the property and the resulting financial projections are displayed in a document […]
