“PRIMER” FOR VALUATION AND ANALYSIS OF INVESTMENT REAL ESTATE:
INITIAL COMMENTS
The following is intended as a rough “primer” primarily to help give some of the real estate IBK analysts
and associates with limited real estate experience some perspective on the analysis and valuation of
investment real estate at the asset level – as separate from the analysis at the corporate level and in the
public markets.
I have tried to make this discussion very targeted, keeping theory to a minimum and focusing only on those
points which would be most practical and useful for the work we do.
I have included some rough real estate valuation “rules of thumb” which also may be helpful. These are,
obviously, not intended to be authoritative, or comprehensive, but are only intended to provide perspective
and give a rough frame of reference.
I will begin with a brief discussion of basic real estate valuation/analysis concepts and then move on to a
quick review of each of the major real estate sectors (apartments, office, retail, industrial and hospitality). I
have also included a brief discussion of the land development business and land valuation.
Finally please keep in mind that I wrote this somewhat quickly – and did not research every fact and
statement made. Again the purpose was to generally familiarize the reader with the real estate
analysis/valuation process, review some basic concepts (and the major real estate sectors) and provide some
practical rules of thumb, not to provide an authoritative, or comprehensive, document. That said, hopefully
it will provide the reader with some additional perspective on the real estate business (from an asset
perspective) and real estate analysis.
SOME IMPORTANT GENERAL CONCEPTS
Real estate is a very inefficient market. This is especially true when compared to more liquid markets such
as the stock and bond markets where securities are trading constantly. Real estate trades happen slowly and
are complex. Getting full information on a commercial real estate transaction, without some inside access,
is difficult. This characteristic permeates all real estate sectors, some more than others (we will look at each
sector in some detail below). While information such as price and date of sale are usually publicly recorded
(and approximate size can often be ascertained from a variety of sources) income information and financing
details may not be available, or only “sketchy” information may be available.
What is traded in a real estate transaction is really the rights in realty (the right to use and enjoy a property
and collect income from it). If all of the rights in a property are owned this is called fee simple rights. If
you divide these fee simple rights up, the tenant’s rights are called the leasehold and the landlord’s rights
are called the leased fee. In a multi-tenant office building, or shopping center, for example, the owners
position would be called the leased fee (not the fee simple) since the tenants have “rights” as per their
leases. This may also include the right to sublease (lease to another tenant) at a market rate. If their lease
permits subleasing, the tenant may be able to collect the rent from the subtenant and pay the landlord for
their lease, keeping the spread (known as a sandwich positions). If the lease permits a transfer then this
leasehold interest could be saleable.
Real estate, in the private (i.e., non public) market is almost always analyzed on a cash basis. Often this
involves converting from GAAP numbers, which is usually what you will find in financial statements,
particularly for public companies. The major adjustment here (to create cash numbers) is usually to adjust
for straightlined rents, which is averaging out the (base) rent over the term of the lease. Other important
adjustments that often need to be made are eliminating non-cash charges from the income statement such as
depreciation.
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Two, basic income metrics for real estate investors are (cash) net operating income (NOI) and cash flow
(before debt service). The difference between these numbers is capital items, which will vary by sector.
For office, retail and industrial properties this will include tenant work (“TI’s”), leasing commissions,
replacement reserves, etc. (This will be discussed in more detail below).
The basic, summary, calculation of NOI and cash flow, across most sectors (hotels for example are slightly
different), is as follows:
Potential Income
Less: Vacancy and Bad Debt
Effective Gross Income
Less:
Operating Expenses (Including Management Allowance)
Real Estate Taxes
Net Operating Income
Less: Capital Items
Cash Flow before Debt Service
Most investment real estate can be valued based on direct capitalization of net operating income (although
it should by no means be the only method and always must be viewed in context). The formula is Value =
NOI/Capitalization Rate. The “cap rate” or capitalization rate is the inverse of a multiple and is the
most common value metric used for investment real estate. The NOI used is typically either current
(annualized in-place) NOI, trailing 12 months NOI, forward 12 months NOI or some combination thereof.
Cap rate is really a “shorthand” for a discounted cash flow analysis (DCF). In a DCF you typically
discount back (at a reasonable discount rate) the cash flow (after capital items) for a real estate investment
over a holding period (10 years is most common) and then assume a reversion (sale – less costs of sale) of
the real estate at the end of the holding period. The discounted present value of the cash flow and
reversion is a measure of the value of the real estate.
The beauty of the cap rate, and its weakness, is its simplicity. Theoretically a cap rate incorporates all of
the characteristics of a real estate investment. If the income in place is relatively high and/or above market,
the investment will have less growth potential and the cap rate will be higher. Conversely if the income in
place is below market the investment may have more growth potential and the cap rate will be lower.
A good way to think about the relationship between cap rate and DCF is that the DCF directly models and
measures an investment, while the cap rate is a result of all of the characteristics of that investment,
expressed as a ratio of the (cash) NOI to the value.
Finally, when valuing investment real estate it is important to maintain a buyers’ perspective, since,
obviously it is the buyer that determines the value of a real estate investment (or any investment for that
matter). You should go through the analysis process as if you were buying the property.
DISCOUNT RATES AND CAP RATES
A discount rate is a yield rate (or IRR), while a cap rate is a ratio (NOI/Price). A yield rate is the true rate
of return on an investment, while a cap rate is simply the ratio of the year 1 NOI to the value (or price). By
-3definition a discount rate is that rate which makes the future proceeds of an investment equal to its current
price.
When we speak of a cap rate we are talking about an all cash, or pre-debt service number (NOI). Research
analysts (such as Greenstreet Advisors) often refer to a nominal cap rate and an economic cap rate. A
nominal cap rate is typically the cap rate before deducting any cap ex, while an economic cap rate is after
deducting cap ex. Depending on the real estate sector in question (apartments, office, etc.) this may, or may
not match the NOI utilized to determine cap rates in the market. The difference will usually be how cap ex
is estimated and may vary within a given sector (apartments in particular) based on local market
conventions and conditions.
When discussing the discount rate however, it is important to clarify whether we are talking about an all
cash discount rate (i.e., applied against pre-debt service cash flow – as discussed above) or equity discount
rate (applied against cash flow after debt service). An all cash discount rate is a blend of the yield required
by the mortgage lender and the yield required by the equity investor (also referred to as a WACC –
weighted average cost of capital). Below is an example:
Debt Position
Equity
All Cash Yield
% of Value
75%
25%
100%
Required Yield
6%
12%
7.5%
= Weighted Average
4.5%
3%
7.5%
As you can see, a 12 % required return on equity, at a 75% loan to value ratio (“LTV”) with a 6%
required yield from the lender, will produce a 7.5% all cash discount rate (aka IRR, or yield rate).
Obviously, we can solve for the equity yield given a certain all cash yield, if we know the debt terms.
Ultimately, the key return for a real estate investor is his equity yield. (Actually it is really his “after tax”
equity yield. Estimating after tax equity cash flow involves subtracting income taxes from equity cash
flow.) However, when valuing and analyzing real estate investments we typically look at it on a before
(income) tax basis. This is because income taxes may vary by investor (some, such as pension funds, don’t
pay income taxes). As an aside, this is the same as when valuing a company, where you typically would not
consider the income taxes of the investor in estimating the value of a company.
REAL ESTATE LEASES
Income from most real estate investments is from long term leases (hotels are a notable exception). Lease
lengths obviously vary by sector and within each sector by property type and location. A good way to
think of leases, particularly commercial leases (office, industrial and retail) is as “who pays for what”. In
other words, which expenses are the landlord’s responsibility and which are the tenant’s. The lease clause
spelling out “who pays for what” and how the tenant will reimburse the landlord for his share of expenses
is typically referred to as an expense escalation clause.
Apartment leases, in most markets, are typically 6 months to one year, depending on the building and
the market. Depending on the building type, infrastructure, age and location, the tenant may pay for
utilities directly, or the landlord will pay (and the rent will be adjusted to incorporate this).
Broadly speaking, commercial leases (office, retail and industrial) can be categorized as gross, or net.
A fully gross lease is a lease where the landlord pays for all expenses, while in a fully net lease (also called
a “triple net lease”) the tenant pays for all expenses. In reality most commercial leases fill the spectrum
between these extremes of fully gross and fully net.
-4-
Office leases tend to be more towards the gross side of the commercial leasing spectrum as defined
above (although net leasing, particularly in newer buildings is becoming more common). In most office
markets nationally what is know as a full service gross lease is the most common. In this lease type the
landlord pays base year (the year that the lease was signed) operating expenses (including real estate
taxes and tenant electricity costs). Going forward as operating expenses and real estate taxes increase
each year, the tenant pays the increase between each year’s expense level and the base year expense level.
In this way the landlord’s expenses are stopped at the base year amount. (Typically an expense stop refers
to a stated expense amount as opposed to a base year. In the end however, their function is the same.)
Retail leases tend to be towards the net side of the leasing spectrum. Here the tenant will typically pickup most of his pro-rata share of the property operating expenses (including real estate taxes). (Pro-rata
share is typically calculated as the tenants square footage divided by the total building square footage.
However, sometimes the tenants share is a stated percentage of building expenses, while it may also be a
stated amount.) Single tenant industrial buildings are often leased on a triple net basis. Leases for multitenant industrial buildings will vary, but often take the form of a modified gross (aka industrial gross)
lease, wherein the tenant lease includes (i.e., the landlord pays for) real estate taxes, fire insurance, roof and
outside wall maintenance, but where the tenant pays for other operating expenses.
Rent via a commercial lease typically takes the form of base rent (aka minimum rent) and operating
expense and real estate tax escalations (how operating expenses and real estate taxes are reimbursed by the
tenants to the landlord, as noted above). A typical commercial lease will provide for annual base rent
increases in the form of either a CPI clause (an inflation based formula based on a specific, stated, CPI
index) or a stated annual increase spelled out in the lease (aka a rent step-up). Operating expense and real
estate tax reimbursement clauses may take the form of a tenant reimbursement of expenses over a base
amount, a gross lease (landlord pays all operating expenses), a net lease (tenant reimburses their full prorata share), or a stated reimbursement amount. (As noted, leases can also include a combination of the
above reimbursement formulas.)
Multifamily apartment and commercial leases will be discussed further below, incorporating the
characteristics of each of the major real estate sectors discussed (apartment, office, retail and industrial).
INCOME AND EXPENSE ANALYSIS TO YIELD NOI AND CASH FLOW – BY SECTOR
Real estate is almost always analyzed on a cash basis, across all sectors. However, the estimation of income
and expenses (to yield cash NOI and cash flow) obviously varies by sector, incorporating the characteristics
of the sector under question. With this in mind, I will briefly discuss some of the characteristics of the
most common real estate sectors as they relate to the estimation of income and expenses. Please keep in
mind that this is just a rough overview.
MULTI-FAMILY APARTMENTS
Most rental markets in the country are characterized by free market rents (no rent control), with garden
apartments as the dominant format, moderate occupancy levels (national average is probably in the low
90’s) and annual tenant turnover levels often above 50%. Urban markets will have more mid to high rise
developments, lower turnover levels and greater condo potential. New York is a unique market with a huge
inventory of fully occupied rent controlled and stabilized units – with free market dominating the high end.
Qualitative classifications for apartments are typically A, B, C, or D. These informal classifications vary be
market and submarket. Typically however, higher classification properties tend to be newer and have
higher rents.
-5-
Employment and employment growth are the key demand drivers for increasing apartment rents. Housing
affordability is also very important, as in recent years cheap single family homes and low interest rates
have made owning cheaper than renting in many markets and weakened many multi-family rental markets.
Also important, of course, is new multi-family construction in a given market.
Typically there are two types of vacancy for a multi-family apartment. The first is physical (or market)
vacancy, which is the actual number of unleased units divided by the total number of units. The second is
economic vacancy. Economic vacancy incorporates items such as rent concessions (free rent), down
time between leases, etc. It is really the difference between “potential gross income” (theoretical rent
achievable if all units are leased) and true rent collections. Obviously, this is the more meaningful measure
at the asset level. When a market weakens or strengthens it is usually the rent concessions that will be
effected first. (Potential gross income may be assuming all units are leased at market, or may be assuming
leased units are at current contract rents and vacant units are at market rent).
Aside from rent collection from the apartments, “other income”, such as income from laundry concessions,
parking, appliance rentals, utility reimbursements, etc. must also be included, as is applicable of course, to
estimate total income for the property.
Most garden apartments built in the last 20+ years have tenants paying for their own utilities. Individual
HVAC units are the most typical configuration I have seen. Often older properties will not have the ability
to separately meter utilities to the tenants. Therefore the cost of this (usually plus some profit) will be
incorporated into the tenant’s rent. The analyst must be cognizant of this when comparing different
properties.
The “units of comparison” most typically utilized when analyzing apartments is per unit, or per sf. Rent is
most typically stated as dollars/square foot/month. For example, typical “B” quality garden apartments in
most markets in the country (excepting some of the major urban markets – primarily in the northeast and
far west) will have market rents of around $.75 to $1.25/sf/month. Average unit size will likely be
somewhere in the 800 sf range. (This equates to a $800/month rent at the midpoint.)
Typical lease length for most multi-family apartments in most markets is 6 months to one year, as noted
above. Annual resident turnover rates in most markets exceed 50% per year. Some more transient markets
such as Phoenix, or Las Vegas, may have turnover rates approaching 100%. Conversely, more urbanized
markets, with higher housing costs and a more stable renting population (such as the San Francisco Bay
area, the urban northeast, etc.) will have much lower turnover rates.
Operating expenses for apartments can be analyzed on a per square foot basis and (a somewhat “rougher”
measure) as a percentage of revenue (assuming stabilization). For example, from my experience, I would
expect operating expenses (including RE taxes) for a “B” quality garden apartment in most markets to
probably fall somewhere in the 40% to 50% (of revenue) range. The ratio for new apartments will be
somewhat lower, since they are more efficient, while older properties will be higher. Operating expenses
for apartments in major urban areas will tend to be higher due to higher labor costs, utility costs, insurance
and (probably the biggest item) real estate taxes. Operating expenses can be analyzed for a given property
based on comparison to historical operating results for the property in question, comparison to operating
expenses for competitive properties in the market (if available) and published expense surveys.
Management fees for apartments are usually around 3% to 5% of effective gross income (real income
collections before expenses). Management fees should be deducted when doing a private market valuation
even if it is currently owner managed since any buyer will make this allowance when valuing the asset. An
owner managed property will sometimes only have management costs in their P & L.
-6Capital expenditures are perhaps the most tricky for apartments. As noted above, research analysts/often
refer to nominal cap rates (pre-cap ex deduction) and economic cap rates (after cap ex). For apartments,
typically neither of these are what is used in the private market by buyers of apartments. Typically buyers
in the private market will assume a replacement reserve of around $250 to $300 per unit per year. The
reality is that it probably takes $600 to $800 per unit per year to adequately reserve for an average garden
apartment property, which is in the range of what the research analysts use in calculating their economic
cap rates. This is done, I believe, to establish a baseline in analyzing apartment REITs, since the expensing
and capitalizing of expenses to calculate FFO is not handled consistently among the apartment REIT’s.
Cap ex for apartments consist of recurring expenditures such as costs on turnover (unit cleaning, painting,
carpet cleaning and replacement, appliance repair and replacement, etc.), roof repair, lighting repair and
replacement, parking lot repair, etc. Long term cap ex items include roof replacement, new appliances,
cabinet replacement, appliance replacement, new windows, new building facades, etc.
A cash summary income and expense statement for a typical apartment property might look as follows:
Potential Gross Income (Total units times market rent for each unit)
Less Vacancy:
Physical Vacancy
(Vacant Units)
Rent Loss
(Difference between market rents and rent in place)
Rent Concessions
(Free rent on new leases)
Model Units
(Units reserved as models)
Effective Gross Income
Operating Expenses
Payroll
Property Admin Expenses (Not corporate G & A!)
Marketing & Leasing
Maintenance and Repairs
Landscaping
Utilities
Insurance
Real Estate Taxes
Management Fee (Typically 3% to 5% of Effective Gross Income)
Replacement Reserves
Net Operating Income
Apartment valuation is usually performed on a cap rate basis. DCF analysis is somewhat less useful here
since the leases are generally relatively short term. Also important is looking at sales of competitive
properties on a price per unit basis and price per square foot basis. Cap rates for apartments have fallen
significantly over the last couple of years, due to low mortgage interest rates, lower equity yield
expectations from investors and an anticipated improvement in apartment rent and occupancy fundamentals
which (it is hoped) will raise net operating income over the next few years.
-7-
OFFICE BUILDINGS
The office sector is probably the largest of the real estate sectors. Certainly it is by far the most followed
with the most information available in terms of current market leasing statistics and market economic
conditions.
Office buildings are generally characterized as CBD office (often mid to high rise) and suburban office
(often low to mid rise). They are also typically informally classified qualitatively as A, B, C and D. This
qualitative judgment varies by market and submarket. As with apartments, job growth is the major
economic driver of demand for office space. Of course new office construction is a major factor on the
supply side.
Office (and Commercial) Leases:
Typical office lease length for a suburban office building is probably in the 3 to 5 year range for small to
mid size tenants. Larger tenants will often have longer terms (5 to 10 years is probably typical). Typical
lease lengths for CBD office buildings (particularly major class A properties in major markets) will tend to
be longer.
As previously noted, most office leases are full service gross leases, where the landlord pays the base year
(first lease year) building operating expenses and real estate taxes and the tenant picks-up his (pro-rata
share) of the increase in these expenses over the base amount. (These amounts are typically calculated on a
per square foot basis and multiplied by the tenant’s square footage.)
Office buildings are among the most capital intensive of real estate investments, often requiring significant
capital for building out tenant space upon rollover of existing leases. For a new lease this will likely involve
the landlord building out new space for the tenant, known in the industry as a workletter (typically an
addendum to the lease detailing the work the landlord will do), or “TI” (tenant improvement). Renewal
leases may also require a landlord contribution for tenant work as well, but not as much as for a new lease
(50% to 33% of a new lease workletter is not a bad rule of thumb). Other capital costs upon tenant rollover
include leasing broker commissions. Leasing commission rates vary by market. A rough general guide to
leasing costs might be 5% of the aggregate lease rent for a new lease deal and 50% of this amount for a
renewal lease.
It is important to realize that tenant workletters are a form of rent concession. A lease made on an “as is”
basis (no TI) will have a lower rent than one with tenant work (the landlord outlay is amortized, at a
reasonable rate of return over the lease term and added to the as is rent). New office leases (especially for
first generation, or previously unleased, space) will typically be offered with a building standard
workletter, wherein the landlord will pay to finish the office space to a basic building standard. If the tenant
wanted the landlord to provide an above standard finish, this would be amortized in the lease and the rent
will be higher than for a standard finish.
Another common rent concession is free rent. One or two months of free rent is not uncommon for most
office leases to allow for build-out of the space and tenant move-in. Free rent periods beyond this however,
are often given as a rent concession, sometimes in lieu of, or in addition to, a tenant workletter, or other
rent concession.
-8-
It is useful to keep in mind, that because commercial leases have such a wide variety of base rent and
expense escalation provisions, leases typically need to be compared on the basis of their effective rent.
Under this calculation all of the tenants’ payments (including rent concessions and anticipated expense
escalations) over the term of the lease are discounted back to a present value at a reasonable rate of return.
This present value of the future lease payments can then be amortized over the lease term to yield a flat
rental payment with the same present value as the actual (varying) anticipated payments (and concessions)
over the lease term. This methodology allows comparison of widely varying lease structures on an “apples
to apples” basis, from an economic perspective. Some brokers and market participants do this effective rent
calculation on a non-discounted basis.
Office Building Measurements:
Measurements of office buildings are complicated and there is some variation by market. Typically
however, most office leases are based on rentable area. Rentable area is the measurement most typically
utilized to determine the income generating square footage of a building and to calculate a tenants’ leased
area and proportionate share for expense escalations. BOMA (Building Owners and Manager’s
Association) publishes guidelines for calculating rentable area, which includes common building areas,
such as lobbies and corridors. Basically, rentable area can be viewed as the usable area (area a tenant can
“put a carpet on”) plus the common areas of the building. (Also the difference between the rentable area
and the usable area is commonly known as the loss factor. A typical loss factor range in most markets is
10% to 20%, stated as a percentage of the rentable area). The final measurement to be aware of for office
buildings is the gross building area, which is typically the actual physical measurement, above grade, of
the building. This will usually vary somewhat from the rentable area.
Calculation of NOI and Cash Flow for an Office Building:
Provided below is a typical operating statement for an office building. The particular summary shown
includes the revenue and expense line items (summarized to some degree) for a cash flow analysis for a
major northeast office building.
(Note: The cash flow line items shown are in the format generated by the Argus software program. Argus
is a “lease by lease” real estate program that has become somewhat of the standard in the industry. In this
program, information for each lease is entered into the program [term, base rent, rent increases, expense
pass throughs, renewal options, etc.], along with lease “rollover” assumptions [market assumptions for releasing once the lease expires] and building expenses. The Argus program will do the calculations, on a
lease by lease basis, to produce a cash flow, which can be used to value the property. Argus (and other
programs like it, such as Dyna, which is less used) allows the running of sensitivities and scenarios for a
multi-tenant property. Before such programs, such analysis was extremely time-consuming and in many
cases essentially impractical.)
-9Potential Gross Revenue:
Base Rental Revenue: Includes starting base rent and step-ups. Normally base rent would also include
CPI increases as well (base rent would typically include either CPI based base rent increases, or step-ups,
but not both.). In the Argus program, CPI based increases are broken out separately. Also in Argus,
this line item will include a rent allocation for lease-up space (currently vacant) , which is then deducted
below.
Absorption and Turnover Vacancy: Vacancy from space reserved for lease-up and downtime between
leases on turnover.
Base Rent Abatements: Deduction for free rent specified in the base lease term.
Scheduled Base Rent Revenue: Base rental revenue less absorption and turnover vacancy yields
actual base rental revenue expected (except for CPI, which is added below).
CPI Revenue: CPI based base rent increases specified in leases.
Operating Expense Reimbursement Revenue: Tenant reimbursement to landlord for operating
expenses, as per their lease. This building has mostly full service type leases, with the tenant reimbursing
the landlord for increases in operating expenses over the base year amount. However, electricity is billed
separately, which is common in NYC and certain other major markets.
Porters Wage Revenue: This is a type of operating expense reimbursement prevalent only in New York
City. It is like a CPI, except that it is based on increases in the NYC porters wage rate for NYC office
buildings.
Tenant Electricity Revenue: In NYC (and certain other major markets around the country) tenant
electric is billed separately. Tenant electricity usage can be billed based on a stated amount as per the
lease, an annual survey of usage, a submetering of usage (building is metered with tenant utility
usage is measured and billed by building), or directly metered by the local utility. (In most markets
around the country office rents are full service, with tenant electricity included in the base year operating
expenses and paid by the landlord. Under this arrangement the tenant will only pay the increase in
tenant electric costs, along with other building expenses.)
Other/Miscellaneous Income: May include categories such as parking income (often contracted to a
parking operator) additional tenant service charges, lease cancellation charges, retaining of security
deposits, etc.
____________________________________________________________________________________
Total Potential Gross Revenue: Sum of the above categories.
In Argus the vacancy allowance that would normally be applied against Potential Gross Income is
divided into two categories:
General Vacancy: A vacancy allowance applied against total potential gross revenue, or some subset of
the above (such as base rent only) as is deemed appropriate. Argus allows several methods for
calculating a general vacancy allowance. You can apply a straight percentage vacancy allowance,
regardless of vacancy from other sources, or you can choose to include absorption and turnover vacancy
in your vacancy allowance calculation. For example, under this choice, if you were to specify a 5%
vacancy allowance and absorption and turnover vacancy are 3%, the vacancy allowance taken would be
2%. If absorption and turnover vacancy were 6%, then no vacancy allowance would be taken.
-10
Credit Loss: A general vacancy allowance applied against potential gross revenue. Primary purpose is to
allow for losses due to bad debt.
Effective Gross Revenue: Total Potential Gross Revenue - less the vacancy allowance items
discussed above.
Total Operating Expenses:
Real Estate Taxes: Real estate taxes due to the local municipality. In this case New York County
(Manhattan). Real estate taxes are based on the assessed value for the property, which is determined by
the local assessor. A tax rate is applied against the assessed value, which yields the real estate taxes due.
Assessment policies differ from municipality to municipality. It is important to consider assessment policy
upon sale of a property. Does the municipality assess at full market value as indicated by the implied sales
price? If it does this may involve some interpolation to determine the appropriate value, since each time the
real estate taxes change the property value changes. It is also important to remember however, that in most
municipalities a reassessment based on full market value probably will not occur. (A noteworthy exception
is California, where properties will be re-assessed upon sale based on the full market value. However, tax
liability is limited to 1% of value and, without a change in ownership the growth in tax liability is limited to
2% per year.)
Insurance: Fire and liability insurance premiums. Major owners will often have multiple building
policies that spread risk and reduce premium costs.
Utilities: Electricity (may include tenant electricity cost - excepting those that are directly metered), gas
and fuel, purchased steam, water and sewer charges.
Payroll: Salaries and benefits for porters, maintenance workers and other building employees.
Administrative: Professional fees, general office expenses, other administrative expenditures.
Management Fees: Fee (to an outside contractor) for managing a property. A good rule of thumb in most
markets is 3% to 5%. Can often be lower for major properties due to opportunity to generate leasing
commissions.
Cleaning: Typically contracted out. A major cost item.
Repairs and Maintenance: Costs for building repairs and maintenance costs such as HVAC repairs,
parking lot repairs, etc.
Security: May be contracted out, or handled internally. For a major NYC office building would most
likely be contracted.
Landscaping: Most likely contracted landscaping, snow removal, etc.
Administrative Expenses: Office and administrative
Ground Lease Rent (If applicable): Rent payments to owner of the land. The existence of a ground lease
indicates that the building owner does not own the land. Length and terms of ground lease must be
analyzed. A short term ground lease (less than 40 years remaining is a good rule of thumb), or one with
onerous potential rent increases can be problematic and negatively impact financing potential, saleability
and value.
Miscellaneous Expenses:
-11
Net Operating Income: (Effective Gross Revenue Less Operating Expenses)
Capital Expenditure Deductions:
Tenant Improvements: Tenant improvement costs incurred upon lease rollover (new leases and renewal
leases) and lease-up of vacant space.
Leasing Commission Costs: Leasing commission costs incurred upon lease rollover (new leases and
renewal leases) and lease-up of vacant space.
Reserves for Replacement of Capital Items: An allowance for replacement of major capital items such
as roofs, HVAC equipment, parking lot replacement, etc. A good rule of thumb might be $.10 to $.20/sf of
gross area, depending on age condition and location.
Cash Flow (Before Debt Service): Cash net operating income less capital items, as noted above.
Multi-tenant office buildings are typically valued based on a combination of a discounted cash flow
analysis, direct capitalization of NOI and indicated price per square foot (based on comparison to recent
sales of similar competitive office buildings in the local market).
RETAIL PROPERTIES
The general lease structure, financial analysis and valuation process for multi-tenant retail properties is
generally similar to office buildings, except for a few notable differences. First, retail leases tend to be net,
while office leases tend to be full service, or gross. In addition, the economic determinants of rent for a
retail space are generally a function of the sales levels that a tenant can generate in a particular location. For
example, if a retailer can generate $500 per square foot in a particular space and the appropriate ratio of
rent to sales for a particular type of retailer is 5% (varies by type of retailer, size, location and type of retail
space - regional mall, neighborhood shopping center, urban street retail, etc.), the minimum (aka base)
rent would be $25/sf. In addition, many retail leases will include a percentage rent clause, wherein the
tenant will pay additional rent if sales are above a particular breakpoint. The most common breakpoint
found in retail leases is known as a natural breakpoint, which is simply the minimum rent divided by the
percentage rent ratio. (In the above example the natural breakpoint would be $500 per square foot and the
tenant will pay percentage rent at the rate of 5% for each dollar of sales above this amount. The minimum
rent, of course, will be $25/sf, regardless of the sales level.) Also you should be aware that sometimes
leases have breakpoints which are at a particular stated level, which are not natural. In addition, sometimes,
usually in distressed situations, retail leases will have no minimum rent, but will just pay a straight
percentage against their sales levels.
Retail real estate can be divided into several property subsectors which are briefly described below:
Regional Malls: Typically enclosed, fashion oriented shopping centers. Can be divided into super
regional malls (typically above 800,000 square feet, at least 3 department store anchors and market
dominant) and regional malls (roughly 400,000 to 800,000 square feet and at least one or two full line
department store anchors of at least 100,000 sf). Anchors at regional malls have traditionally been the draw
that brings shoppers to the centers. The anchor tenants may own their own land and store building, own just
the building but lease the land (ground lease), or rent both the land and the building from the shopping
center owner. Rents for anchors tend to be low and very long term, since their purpose is as a draw, as
opposed to a money maker for the mall owner. If the anchors own their own store there will typically be an
operating agreement that governs the department store owner’s usage of his space.
-12Regardless of how the anchors are owned, mall owners really make their money from the small shop (nonanchor) tenants. One important measure of the strength and quality of a regional mall is sales per square
foot of small shop space (typically excludes large major tenants as well as anchors). As with most real
estate sectors, malls can be quality graded as A, B, C and D (with + and – grading). To give some
perspective, an A+ mall would have small shop sales, probably above $600/sf, an A mall $400 to $600/sf, a
B mall $300 to $400 per sf and a C mall $200 to $300 per sf. (These parameters are very rough, vary by
location and change over time.)
A regional mall requires a minimum primary trade area population of at least 150,000 people, while a
super-regional mall would require at least 300,000 people. (Primary trade area is sometimes defined as the
area immediately adjacent to the shopping center from which the retail tenants obtain 60% to 70% of their
sales, or customers.)
Although most retail tenants will have net leases in a regional mall, the calculation of expense escalations
for a large regional mall is probably the most complex for any real property type. This is primarily because
most large malls will have numerous different formulas for determining reimbursable common area
maintenance (CAM) expenses and the tenants’ proportionate share (known as “CAM pools”). The big
variable is which anchors, or major tenants, are included, or not, in the calculation. A typical mall (small
shop) tenant in a regional mall will pay minimum rent, percentage rent (if sale are above the breakpoint),
CAM reimbursement charges, RE tax reimbursement charges, electricity and HVAC charges for their
space, a contribution for marketing and advertising and other expenses. CAM charges include mall
maintenance charges including HVAC charges for the common areas. As may seem obvious, all of these
costs in aggregate can become quite significant. A rule of thumb for most types of retail tenants in regional
malls is that total costs (including rent) should not exceed 15% of sales. For many tenants going beyond
this amount can be viewed as a danger sign. Conversely falling significantly below this amount may
indicate the possibility that there may be room to increase rents.
Regional malls are typically valued on the basis of a DCF and/or a direct capitalization of NOI. In today’s
market, for stabilized properties (properties not still in initial lease-up), NOI for capitalization is usually
based on first year in-place NOI, with minimal allowance for lease-up of currently unleased space. NOI
would typically be after a replacement reserve allowance of say $.15 to $.30 per square foot, depending on
the property type size and age. Cap rates for top quality regional malls have traditionally been among the
lowest of any real property type. Comparison to recent sales of other regional malls on a price per square
foot basis is often difficult since the percentage of anchors and major tenants (and whether the anchors are
owned, ground leased, or leased) varies from mall to mall, making apples to apples comparison difficult.
The sector (there are approximately 1,100 malls in the U.S., I believe) is also dominated by a small number
of, mostly public, companies
Community Shopping Centers: Typically open air shopping centers ranging in size from 150,000 sf to
350,000 sf. Provides soft lines (clothing) and hard lines (hardware and appliances) and often includes a
supermarket. Community shopping centers occupy the mid-range between the personal service oriented
neighborhood shopping center, described below and the regional mall, described above. Leases are
primarily net and most tenants will have percentage rent clauses (although fewer than for a regional mall).
Sales levels for small shop tenants are typically somewhat lower than for a regional mall and anchor tenants
will tend to be leased to the shopping center owner. Valuation techniques for a community center (DCF
and cap rate applied against NOI) are similar to a regional mall. All things being equal, cap rates will tend
to be higher for a community center than for a regional mall,
Power Centers: Similar to community centers, however with a focus on big box tenants and fewer small
tenants (Big box tenants are also known as “category killers” – meaning they are so strong in their
merchandising lines that no competing retailer in the same line could be attracted to the center). Power
centers typically have more than 250,000 square feet and 3, or 4, anchor tenants that occupy at least 75% of
the space. Anchors are typically discount oriented specialty retailers. Lease income for these type of tenants
-13
will tend to be flatter than for community centers and other retail formats (due to the higher percentage of
big box, often national chain, tenants, who tend to have longer term, flatter leases). Leases are typically net
and percentage rent is usually limited in this type of center, from what I have seen. Applicable valuation
techniques are the same as for other the other retail property types discussed above. Cap rates for a power
center sometimes are higher than for a community center, due to the flatter lease income. Price per square
foot may have some more meaning for this subsector than for regional malls.
Neighborhood Shopping Centers: Provides for the sale of convenience goods (food, drugs and sundries)
and personal services for the day to day living needs of the surrounding neighborhood. A supermarket is
typically the anchor tenant and many will also have a drug store. Typical gross leasable area ranges from
30,000 square feet to 150,000 square feet. As with all retail, leases are typically net. While many tenants
will have percentage rent clauses, percentage rent is usually somewhat limited in most neighborhood
shopping centers I have seen. Sales levels for supermarkets are among the highest of any retail tenant,
while margins are among the lowest. Consequently rent as a percentage of sales for grocers is among the
lowest of any retail category (usually around 2%, or so). Valuation techniques are the same as for other
retail property types. Cap rates tend to be low for this retail property type since investors view them as
somewhat insulated from economic downturns due to their focus on “bread and butter” items, such as food,
drugs and personal services. Price per sf may have more meaning for this subsector than for a regional
mall.
In addition to the more traditional types of shopping centers discussed above, the retail landscape in the
U.S. also includes the following specialty retail concepts:
Outlet and Off-Price Shopping Centers: Fashion oriented specialty retail center. Typically composed of
factory outlet stores (typically owned by the manufacturer with sales directly to the public), mostly from
fashion retailers and furnishing retailers. Also may include off-price retailers (differs from factory outlet
stores) that sell retail goods at a discount. Typically located outside of metropolitan areas (but still within a
reasonable driving distance), so as not to compete with “full price” sales of their goods from retailers.
Most outlet shopping centers contain both factory outlet stores and off-price retailers. Land is often worth
very little (relative to other retail formats) due to, typical, exurban, or rural, location.
Lifestyle Shopping Centers: Is a relatively new retail format. A lifestyle center is typically open air,
upscale oriented and in an upscale location. Typical size ranges from 150,000 to 500,000 square feet of
GLA. They may, or may not, have a traditional department store anchor. Typical tenants in a lifestyle
center would include high end fashion, furnishing and food retailers. The local demographics should also
be high end. A major appeal of the lifestyle centers to tenants is the much cheaper CAM costs as compared
to regional malls, where such tenants would most typically be located.
Other Specialty Retail Formats: Some additional retail concepts include Hypermarkets (grocer, drug,
apparel and general merchandise operated by a single owner under one roof) and Warehouse Clubs (such
as Price Club, Sam’s Club, Costco, etc.) among others.
INDUSTRIAL PROPERTIES
Industrial (investment) properties include modern bulk warehouse/distribution properties, second tier
warehouse and light industrial properties and flex/R&D properties (sometimes included with office
properties). The industrial sector spans a wide qualitative range, from institutional quality modern bulk
warehouse properties (often leased to credit tenants) to small, lower quality, (often) functionally obsolete
warehouse and light industrial properties, leased to local “mom and pop” type tenants. The industrial
sector is perhaps the most difficult to clearly define and segment since the various subsectors tend to
overlap and the buildings (other than bulk warehouse/distribution) are used in so many different ways.
Therefore, although it is likely an oversimplification, I have tried to segment industrial investment
properties into the major subsectors below:
-14
(Modern) Bulk Warehouse/Distribution Properties: Are for the storage and distribution of goods. Over
the last 20 to 30 years, or so, the trend has been towards larger warehouse properties with higher clear
ceiling heights to maximize storage. Many of these properties are triple net leased (the tenant pays all
operating expenses and real estate taxes) to a single credit quality tenant via a long term lease (companies
such as UPS, Walmart, Toyota, etc.). The “state of the art” for bulk warehouses today is for very large
properties with very high clear ceiling heights and numerous truck bays for easy loading and unloading.
While most bulk warehouse in most markets are probably in the 200,000 to 300,000 range, the state of the
art today is for vary large warehouse of from 500,000 to over 1 million square feet. Clear ceiling heights
can be 36 feet to 40 feet. Ceiling heights below 30 feet may be considered obsolete. Also, floors need to be
very flat when ceiling height is so high (known as a “superflat” floor). Industrial buildings that don’t meet
these requirements may be considered obsolete, depending on the market and the tenant. (Office space in
most bulk warehouse buildings ranges from 5% to 15% of total square footage). Major warehousedistribution markets include LA metro, Chicago, northern and central NJ, DFW, Atlanta, Cleveland and
Indianapolis. Modern warehouse/distribution properties (with long term triple net leasing to credit quality
tenants) is a highly desirable, low risk, institutional quality investment and typically trades for very low cap
rates. Older warehouse properties, which don’t meet the technical requirements of the strongest warehouse
tenants in the marketplace may be leased for lower rents, to lower quality tenants and/or for shorter terms,
or they may be put to an alternative use. Valuation techniques for industrial properties would include direct
capitalization of NOI (before an allowance for TI’s and leasing commissions, but, usually, after an
allowance for replacement reserves), DCF analysis and comparison to recent sales, typically on a per
square foot basis.
(Older) Warehouse/Light Industrial Properties: This refers to a broad spectrum of industrial properties
ranging from functionally obsolete warehouse properties (discussed above) to a wide range of industrial
properties housing all types of businesses for a wide range of industrial and office uses. These types of
properties are often not institutional quality. Leases for single tenant buildings will tend to be net. Multitenant industrial buildings may have net leases, industrial gross, or some other formula. The percentage of
office space for this type of building can vary significantly, depending on the tenant and the local market.
Typical industrial buildings will typically have a percentage of office space of 10% to 20%. However, in
mature locations it is very common to find office percentages well in excess of this amount. When
estimating rent for an industrial building it is useful to estimate rent as a blend between the office portion
and the warehouse portion. For example, a building which is 35% office and 65% warehouse, where the
market rent is estimated at $9/sf (net) for the office portion and $5/sf for the unfinished warehouse portion
would yield a weighted average rent of $5.75/sf for the entire building. (In addition, the difference in the
rent between the office and warehouse portions should be the amortization of the value of the office
buildout over the lease term.) Cap rates on these type of properties are significantly higher than for the A
quality bulk warehouse subsector.
Flex (aka “R & D”) Buildings: Flex buildings are most typically included as a subset of the industrial
market, although in some markets they are grouped with office buildings and compete more in that market.
A flex building, as its name implies, is designed to be flexible. According to CoStar it is “a type of building
designed to be versatile, which may be used in combination with office, research and development, quasiretail sales, and including, but not limited to, industrial, warehouse and distribution uses. A typical flex
building will be one or even two stories with at least half of the rentable area used as office space, have
ceiling heights of 16 feet or less, and have some type of drive-in door, even though the door may be glass,
or sealed off.“ Rent for flex buildings will typically be lower than for competitive office space in that
market. In some markets flex space is often viewed as a cheap alternative to office space, while in others
(generally more tech oriented markets) its versatility fills a major specific need in that market.
-15
HOTELS:
Hotels are different from other real estate sectors since income is transient (i.e., there are no long term
leases, other than for ancillary uses such as retail shops, parking, etc.). Essentially a hotel is out there every
day trying to lease up their space. There is no protection against downturns, or economic shocks, as is the
case where income is coming from long term leases. Consequently, hotels are considered among the most
risky of any real estate investment.
Hotels can be broadly divided into full service and limited service hotels. Full service hotels are those that
provide a wide variety of facilities, including food and beverage outlets, meeting rooms and recreational
services. A limited service hotel does not offer food, lounge and banquet service.
Full service hotels can be further divided based on their target market (resort, business hotel, extended
stay), or, their quality/price level (luxury, mid-level, budget). Limited service hotels are generally
economy oriented, although some may compete at mid-pricing levels. While different in appeal, full
service and limited service hotels will often compete for certain guests in many markets (depending on
their relative pricing and location). Hotels can also be grouped, of course, based on the markets they serve
(such as midtown Manhattan, La Guardia Airport, Miami Beach, etc.).
Demand for a hotel can generally be segmented between transient (individual traveler) and group (group
bookings). Each of these categories can be further subdivided between corporate (business) travelers and
leisure travelers. Contract business users, such as airline crews, are another important demand segment for
many hotels. (Rates for airline contract business are notoriously among the lowest a hotel generates).
Operating statements for hotels are typically based on the Uniform System of Accounts for Hotels. A
sample operating statement using this format is provided below:
Occupancy: Percentage of occupied rooms over a specified period.
# Rooms (Keys): Keys means the total saleable # of units. For example a suite which can be sold as 2
separate units would count as 2 keys. Keys are the better metric.
Average Daily Rate (ADR): The weighted average room rate incorporating all the various rate “slices”
(weekend, groups, corporate rates, transient leisure, etc.) ADR can also be calculated by dividing total
room revenue for a period by the number of occupied rooms for the same period.
Revenue per Available Room (RevPar): Total room revenue (over period in question) divided by the
total number of keys in the hotel (multiplied by number of days in period in question).
Revenue (By Department):
Room Revenue: (Revenue from room rentals)
Food:
(Revenue from the sale of food, coffee, tea, soft drinks and public room
(banquets and meetings).
Beverage: (Sale of alcoholic beverages.)
Telecommunications: (Charges for long distance telephone calls, internet connections, etc.)
Other Operated Departments: (Revenues from items such as guest laundry, gift shop, parking, etc.)
Rentals & Other Income: (Revenue from store rentals, commissions, interest, etc.)
Total Revenues: Summation of above revenue items.
Departmental Expenses
Rooms: (Payroll and other expenses related to room department.)
Food & Beverage: (Cost of food and beverage sold, payroll, supplies, etc.)
Telecommunications: (Cost to providers, related expenditures.)
-16
Other Operated Departments
Total Departmental Expenses: (Summation of above departmental expenses.)
Total Operated Departmental Income: (Total Revenue less total Departmental Expenses)
Undistributed Operating Expenses: (Expenses not allocated to a particular revenue generating
department.)
Administrative and General: (GM’s office expenses, acctg, HR, security, data processing, etc. )
Franchise Fees: (Fees paid to franchisor. 2% to 3% of Revenue as rule of thumb. )
Marketing: (Costs associated with promoting and marketing the hotel.)
Property Operations and Maintenance: (Wages, supplies and other expenses associated with
maintaining the furniture, grounds and equipment of the hotel.)
Utility Costs: (Costs for electricity, gas and other fuels, steam, water and sewer.)
Other Unallocated Operated Departments:
Total Undistributed Expenses: (Summation of total expenses not allocated to revenue departments.)
Gross Operating Profit: (Total Operated Departmental Income less Total Undistributed Expenses).
Management Fees: (Fees paid for management services and supervision of the property. May include both
a base and incentive management fee. Typically 3% to 4% of Revenue.)
Property Taxes: (May include real estate taxes, personal property taxes, business and occupation taxes and
other taxes except payroll taxes.)
Insurance: (Premiums for fire and liability insurance.)
F,F & E Reserve: (Reserve for replacement of furniture, fixtures and equipment. Typically 4% to 6% of
Revenue is a good rule of thumb – for valuation purposes).
Total Mgt, Property Taxes, Insurance & F,F&E Reserve
Net Operating Income: (GOP less total mgt, RE taxes, insurance & F,F&E reserve).
Valuations of hotels are often made using direct capitalization of NOI (as defined above), in conjunction
with other valuation measures. The NOI most typically used for a stabilized property today will be forward
12 months. For hotels which are not stabilized other metrics need to be used. Sometimes, if applicable,
looking back historically to a year when the hotel was at a stabilized level may be instructive. Also looking
on a price per key basis, based on comparison to recent comparable sales is also important. Another, albeit
very rough, rule of thumb is to multiply the ADR times 1,000 to yield the price per room. This can provide
a starting point for getting perspective on the applicable value of a hotel property. Many analysts will also
measure the value of a hotel using a DCF analysis. This may be particularly important if the hotel has a
ground lease with rent changes in future years, or if one wishes to directly measure the effect of
repositioning, or significant anticipated income changes on value.
THE RESIDENTIAL LAND DEVELOPMENT BUSINESS
This is the business of turning raw land into finished lots for sale to home builders. The land developer will
go through the process of mapping the site, getting zoning approvals, clearing and preparing the site,
putting in streets, utilities, sewer systems, lighting, project amenities (clubhouses, golf courses, swimming
pools, etc.) and preparing finished lots for sale to home builders. A typical residential land development
project may have several builders who market homes to the general public. Typically the home builder will
sign a lot purchase contract with the land developer agreeing to take down a minimum number of lots per
-17a given period. The home builders will typically put up a deposit which they will forfeit if they break the
contract.
(It is worth noting that many residential land development projects will also include the development of
commercial sections for retail, office and industrial uses.)
The land development business is high risk due to the large upfront costs the land developer must incur
before the project can generate income, combined with the extreme sensitivity of the housing business to
interest rates, job growth and general economic conditions. Consequently, land developers today will look
for equity returns in the mid to upper teens, or more, which are among the highest of any real estate
category.
Land developments (once development has begun) are typically valued on the basis of a DCF, which
requires the preparation of a detailed pro-forma, showing project and lot development costs and historical
and future lot sales, to yield projected cash flow each year, until project sellout. Without a detailed cash
flow projection (for a land development in process) valuation becomes extremely difficult since there is no
way to know what has been invested to date, what costs remain, current profit margin on lot sales etc.
However, if a prospective land development project is still in the raw land stage, value is probably best
estimated on a market comparable basis (price per square foot, or per acre).
VALUATION OF VACANT LAND
I wanted to make a quick comment here about how to think about the value of vacant (urban) land
(assuming that development is economically viable). It is important to recognize that land value is a
residual. In other words land value is created by the value of what a developer can build on a given site,
less the cost to build it (and allowing for a reasonable profit as a percentage of that cost). Theoretically at
least, under the above scenario, what is left will be what a developer should be willing to pay for the land.
It is this economic process that determines land value for urban properties, across all property sectors.
OTHER REAL ESTATE SECTORS
There are several other (more “specialized”) real estate sectors which we work with from time to time,
which I will simply mention here. Some of these are really “subsectors” of the major property types we
have already discussed, while some are unique sectors in their own right. These include (but are not
limited to) health care properties, senior housing, medical office buildings, residential condominium
developments, casinos (gaming), manufactured housing, net leased (typically retail) properties, self (mini)
storage facilities, convenience stores and retail fuel properties, specialized retail properties - or situations
(bowling alleys, movie theaters, department stores, supermarkets, etc.), parking garages, golf courses,
timberland, rural property and other property types. A discussion of these sectors is beyond the scope of
this introductory overview. However, I would be happy to provide information on these property types if
there is interest.
REAL ESTATE SALES AND MARKET INFORMATION SOURCES:
Provided below is a list of some of the real estate sales and market information sources we have in-house
and links to some good information sources I am aware of on the internet. Needless to say I have found that
the internet is a great source of property and market information (and continues to improve). Most public
and many private real estate companies have excellent web sites which provide good property information
and photos. Many of the major full service real estate firms such as Cushman and Wakefield, CB Richard
Ellis, Jones Lang LaSalle, Marcus and Millichap and Grubb & Ellis, among others, have websites where
basic market information (mostly for the office and industrial markets) is provided for free.
-18
In-House Real Estate Information Sources:
REIS Reports: Provides real estate market information for most major U.S. markets in apartment, office,
retail and industrial sectors. Subscription is through GPI, but we can access. (See me for website access.)
CoStar: Contains comparable sales database for a wide variety of asset classes and covers most major
markets. Quality of cap rate information varies by sector. Probably OK for apartments, but weaker for
office and retail. Also includes large office building database with asking rents for available space (caution
needs to be exercised with this information as well, but it does provide a starting point for office rents).
Finally, also includes real estate market reports (office and industrial) for major U.S. markets.
Real Capital Analytics: Database of sales for office, industrial, retail and apartments. Sales analysis
reports (detailing buyers, sellers, capital flows and sales velocity) by market and segments are updated
monthly. (See me for website access.)
Korpacz Real Estate Investor Survey: Quarterly survey of major institutional investors across various
property types. Surveys discount rates, cap rates, residual cap rates (for DCF’s), market rent growth rates,
expense growth rates and average marketing times. Covers retail (malls, power centers, strips), major office
markets, industrial properties, apartments and (twice a year) hotels, net leased properties and development
land.
Emerging Trends in Real Estate: An excellent annual forecast of real estate market conditions across
multiple sectors. Published by PriceWaterhouseCoopers and ULI. Available at year end for upcoming year.
Real Estate Alert: Website requires login – Michelle Schwab, or Margie Ash should have information.
Has database of major sales, multi-property sales and back issues, of course.
Dollars and Cents of Shopping Centers: Study of revenues and expenses for the shopping center
industry (we have the 2004 edition). Most useful for estimating sales ranges, and applicable ranges of rent
to sales ratios, for various types of retail tenants.
Directory of Shopping Centers: Four volume set listing basic information (size, location, year
built/renovated, lease rates (some), avg. mall sales (some), major tenants and mall tenants (some), owner,
manager) for every shopping center (malls, community centers, strips, etc.) in the U.S.
Trends in the Hotel Industry: Study of revenues and expenses for hotels. Segmented by size, price,
location, price, etc. Published by PKF Consulting.
The Host Report: Study of revenues and expenses for hotels. Published by Smith Travel Research.
Self Storage Almanac: Detailed statistical analysis of the self-storage industry.
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Some Other Useful Real Estate Websites:
Marcus and Millichap:
Website for brokerage firm. Provides reports (annually) for multiple sectors across major U.S. markets.
Covers office, industrial, retail, apartments, senior housing, self storage and hospitality (hotels).
Cushman and Wakefield:
Free office market information and information for purchase.
CB Richard Ellis:
Free office and industrial market reports in the U.S. and globally.
Grubb & Ellis:
Free office, retail and industrial market reports.
National Multi Housing Council:
Free information on multi-family apartments, apartment market conditions index.
National Council of Real Estate Investment Fiduciaries (NCREIF):
Provides indices of property performance based on portfolio value change from member firms (insurance
companies, pension fund managers, etc.) Value change estimates based largely on appraisals as opposed to
actual sale changes.
Integra Realty Resources:
Publishes “Viewpoint” annually. Good market overview across multiple sectors.
Julian Studley: Link:
Good office market leasing report for 12 major U.S. markets.
International Council of Shopping Centers (ICSC):
Good source to obtain information on the shopping center industry. Membership required (we still have an
active membership – see me).
HVS International:
Good source site for obtaining hotel information and contact names at HVS to ask questions.
Axiometrics: Data source/consultant for multi-family apartment industry.