Welcome to the official blog of Block Real Estate Services, LLC (BRES). BRES seeks to offer insight and news concerning commercial real estate, financial investments, construction and development of the 212 communities we serve locally and nationally.

Monday, July 27, 2015

Valuation of Commercial Real Estate: Part 1

Valuation of Commercial Real Estate: Part 1Commercial real estate comes in four varieties: Office, Industrial, Retail and Multifamily.

Office buildings range from single story to skyscrapers.
  • Highest profile “trophy” properties
  • Fundamentals most impacted by employment
  • Highest costs upon lease rollover
  • Trends towards larger floor plans, open working spaces, mixed-use environments.
Industrial buildings have the lowest tenant improvement (TI) costs of all property types.
  • Distribution Warehouse Space
    • Trend towards larger spaces, higher clear heights
    • Driven by demand for storing and distribution
      • i.e. BNSF Intermodal – Gardner, KS
    • Just-in-time delivery drives demand for location
      • i.e. UPS Worldport – Louisville, KY
  • Manufacturing Space
    • Diminishing demand 
    • Most functional obsolescence
    • Potential redevelopment opportunities (i.e. Paseo)
Retail buildings are the most glamorous of the product types.
  • Most quickly evolving
    • Post WWII strip center development
    • 1960’s and 1970’s grocery anchored model
    • 1980’s and 1990’s enclosed mall model
    • Current trend toward lifestyle centers
      • Live, work, play
  • Highest credit risk
Multifamily have the least correlation to performance of other property types.
  • New household formation improving apartment demand
  • Fundamentals highly linked to job growth
  • Most subsidized form of real estate
    • Affordable housing increasing in importance
    • Section 42, section 8, LIHTC, etc.
  • Trend toward sustainable housing. 
Private Equity Buyers

  • Individual Ownership
  • Syndicates or Partnerships – LP or LLC
    • Based on individual transaction
  • Private Equity Funds – LP, “Reg D” structure
    • $25 to $500 million of equity
  • Institutional Advisors
    • Advise pension funds, large endowments, etc.
    • $500 million to $1.25 billion
    • Minimum deal size of $25 million
    • Mix of domestic and international holdings
Publicly Traded
  • Real Estate Investment Trusts (REITs)
  • Similar to institutional advisors
  • Advantages:
    • Access to capital (debt and equity)
    • Broad reach to emerging markets
  • Disadvantages:
    • Public reporting - competition can monitor strategy
    • Long-term nature of real estate not well understood on wall street which emphasizes quarterly returns
    • Decisions made to boost short-term earnings may not maximize long-term investor returns

Click here to see the entire Valuation of Commercial Real Estate.


Aaron Mesmer - Block Real Estate Services, LLC (BRES) 
Aaron Mesmer
Acquisition & Sales

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