1. Income and Expense Analysis

2. Income and Expense Analysis
When converting periodic income into a lump-sum value estimate, you can estimate value from: 1. PGI using a PGI multiplier 2. EGI using an EGI multiplier 3. NOI using a capitalization rate 4. Equity income using an equity capitalization rate and adding back the mortgage value 5. Analysis of income estimates for several years using a DCF model
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3. Estimating and Adjusting Market Rent
Lessee and lessor are typically motivated
Both parties are well-informed
A reasonable time is allowed for exposure
The rent is in terms of cash in US dollars
The rental amount represents normal consideration for the property leased, unaffected by special fees
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4. Income and Expense Data
Rent
Rent concessions
Division of expenses
Renewal options
Expense stop and expense cap clauses
Escalation clauses
Expense recovery clauses
Purchase options
Escape, kick-out, cotenancy, and buyout clauses
Continued occupancy clauses
Tenant improvements
Noncompete, dark store, and exclusive use clauses
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5. Lease Data Date of lease Description of the leased premises
Lease terms, rental rate, and payment
Tenant-installed trade fixtures
Revaluation clauses
Signage
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6. Developing Reconstructed Operating Statements
Estimating PGI
From comparable leases
From the current subject property leases
From the subject’s history
Estimating vacancy and collection loss
From comparable properties
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7. Lease Comparison Grid
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8. Developing Reconstructed Operating Statements, continued
Estimating operating expenses
From comparable properties
From subject’s history
Estimating reserves for replacement using contractors’ estimates
Estimating tenant improvement expenses
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9. Developing Reconstructed Operating Statements, continued
Calculating net operating income
Additional calculations
Estimating mortgage debt service
Estimating equity income
Estimating expense and income ratios
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10. Review Exercise 1. Suggested Solution
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11. Review Exercise 2. Suggested Solution
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