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NOI adjustment

Discussion in 'Commercial/Industrial Appraisals' started by Caligirl, Nov 8, 2011.

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  1. Caligirl

    Caligirl Senior Member

    0
    Jan 27, 2006
    Professional Status:
    Certified General Appraiser
    State:
    California
    Interested in opinions/discussion re: NOI adjustments. I know a couple appraisers who use them, some who are vehemently opposed to this. With the current situation (declining rents/hard to predict market rent) it might make sense to look at using it.
     
  2. Michael S

    Michael S Senior Member

    12
    Mar 18, 2009
    Professional Status:
    Certified General Appraiser
    State:
    New Mexico
    We generally use it as a secondary check on the sales comparison approach for leased fee sales. We graph out the NOI and Price per square foot of the comps, do a linear regression and plot where the subject's NOI would place it on the line to determine an appropriate price per square foot. Usually it matches up pretty close to the price per square foot determined in the grid.

    Typically we'll make an adjustment based on tenant credit strength and/or length of term. Although for properties with more than a handful of tenants this gets to be hard to determine.
     
  3. CANative

    CANative Elite Member

    125
    Jun 18, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    Adjusting the NOI? :Eyecrazy:

    I could see reconciling cap rates based on the NOI trend for the property and what's going on with tenants but I would be very uncomfortable fooling around with facts.
     
  4. PropertyEconomics

    PropertyEconomics Elite Member

    0
    Jun 19, 2007
    Professional Status:
    Certified General Appraiser
    State:
    New Mexico

    I assume you mean perceived tenant credit strength ... it is doubtful if you have a credit report on the tenant.
     
  5. PL1957

    PL1957 Senior Member

    9
    Jul 19, 2004
    Professional Status:
    Certified General Appraiser
    State:
    Illinois
    Many national tenants have credit ratings published by Moody's, S&P and Fitch. Those ratings tend to drive the cap rate.
     
  6. PL1957

    PL1957 Senior Member

    9
    Jul 19, 2004
    Professional Status:
    Certified General Appraiser
    State:
    Illinois
    Do you mean making an NOI adjustment in the Sales Approach or "adjusting" a non-stabilized NOI in the Income Approach?
     
  7. PropertyEconomics

    PropertyEconomics Elite Member

    0
    Jun 19, 2007
    Professional Status:
    Certified General Appraiser
    State:
    New Mexico

    For the cap rate ... national vs regional vs local .. yes I agree .. but NOI?
     
  8. PL1957

    PL1957 Senior Member

    9
    Jul 19, 2004
    Professional Status:
    Certified General Appraiser
    State:
    Illinois
    Michael S was describing a basic regression analysis using NOI/sf for the subject and the Comps. This would clearly be affected by the stability of the future NOI, as reflected by credit. If all of your Comps are A, and you are B or unrated, you would have to take that into consideration.
     
  9. Caligirl

    Caligirl Senior Member

    0
    Jan 27, 2006
    Professional Status:
    Certified General Appraiser
    State:
    California
    Yes, similar to what Michael S is describing.

    Rents are becoming harder and harder to forecast and contract rent sometimes not 'enforced' or portions forgiven-so I'm wondering if anyone is using this as another means of comparison
     
  10. residentialguy

    residentialguy Elite Member

    116
    Mar 24, 2009
    Professional Status:
    Certified Residential Appraiser
    State:
    Minnesota

    Wow...this coming from a trainee! :clapping: Very encouraging!!!!
     
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