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The basic guide for commercial real estate: the different ways of appraisal.

Appraisal is also called commercial real estate valuation.

There are three different methods for this:
1. Coast Approach.
2. Sales Comparison approach.
3. Income Capitalization approach.

1. Cost Approach: This method calculates the value by considering how much it would cost to rebuild the property from scratch, including land costs, construction expenses, and depreciation.
2. Sales Comparison Approach: This approach involves comparing the subject property to similar properties recently sold in the market to determine its value.
3. Income Capitalization Approach: This method focuses on the...

The basic guide or commercial real estate: encroachment.

Encroachment—A building, part of a building, or obstruction that intrudes on another property.

In commercial real estate, encroachment refers to a situation where a property owner violates the contractual property rights of another party by unlawfully entering, building, or extending structures onto their neighbour’s land without permission.
This can lead to various legal and financial implications for both parties involved.

The basic guide for commercial real estate: density.

Density—This is the amount of total square feet buildable on a set land. For example: high-density properties feature more floors.

It is a crucial concept that helps define the intensity of land use and the type of development allowed in different zones.

The basic guide for commercial real estate: Phase I and II level Audit in the Environmental Site Assessment (ESA) process.

Phase I level audit—This refers to an initial environmental assessment of a facility by a qualified environmental engineering firm for potential contamination to determine if further investigations are warranted.

Phase II level audit investigations would require further subsurface sampling, electromagnetic, hydro-geological study, and more...

The basic guide for commercial real estate: Gross Absorption Rate vs. Net Absorption Rate.

1. Gross Absorption Rate: The gross absorption rate in commercial real estate refers to the total amount of space that tenants have moved into during a specific period. It represents all leasing activity, including new leases, expansions, and renewals.

2. Net Absorption Rate: On the other hand, the net absorption rate takes into account not just the total space leased but also factors in any vacated or surrendered space during the same period. It provides a more accurate picture of how much space is actually being absorbed by tenants in a market.

The basic guide for commercial real estate: Absorption Rate.

Absorption rate - The net statistical changes in occupied space over a period of time.
Positive absorption reflects an increase in occupied space while negative absorption reflects a decrease.

The absorption rate is a critical indicator for investors as it directly impacts cash flows, property valuations, and investment decisions.
A positive absorption rate indicates healthy demand and can lead to increased rental income and property values.
A negative absorption rate signals oversupply or weakening demand, which may result in lower occupancy rates and potentially lower rental income.

The basic guide for commercial real estate: YIELD.

Yield—The ratio of income from an investment to the total cost of the investment over a given period of time.

In commercial real estate, yield refers to the total annual return generated from an investment property, typically expressed as a percentage. It focuses on the income produced by the property rather than capital appreciation.

Yield can be calculated in different ways, such as gross yield, net yield, and all risk yield.

The basic guide for commercial real estate: proforma.

A pro forma in commercial real estate is a document that contains a property’s cash flow projection over a defined holding period.

It is a critical component of a commercial real estate transaction as it helps investors estimate the net operating income generated by the property, which is essential for assessing its value and potential returns.

Here is an example:

The basic guide for commercial real estate: CAP rate and more.

I have attached the link to a great article prepared by Robert Schmidt.

He is presenting in it a very simple explanation of important in commercial real estate.


The basic guide for commercial real estate: Rentable Square Feet (RSF) vs. Usable Square Feet (USF)

Rentable Square Feet (RSF) refers to the total space within a commercial property that a tenant is charged for in their lease.
This includes not only the specific area the tenant will occupy but also shared or common areas like hallways, lobbies, restrooms, and other amenities that benefit all tenants in the building.
The RSF is calculated based on the actual space a tenant uses plus a proportionate share of these common areas.
Landlords use RSF to determine rent charges as it covers maintenance and operating costs for the entire property.

On the other hand, Usable Square Feet (USF)...

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