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  #1  
Old 11-08-2011, 06:09 PM
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Default NOI adjustment

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.
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Old 11-08-2011, 06:16 PM
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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.
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Old 11-08-2011, 06:33 PM
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Adjusting the NOI?

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.
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Old 11-08-2011, 07:04 PM
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Originally Posted by Michael S View Post
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.

I assume you mean perceived tenant credit strength ... it is doubtful if you have a credit report on the tenant.
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Old 11-08-2011, 08:49 PM
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I assume you mean perceived tenant credit strength ... it is doubtful if you have a credit report on the tenant.
Many national tenants have credit ratings published by Moody's, S&P and Fitch. Those ratings tend to drive the cap rate.
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Old 11-08-2011, 08:53 PM
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Originally Posted by Caligirl View Post
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.
Do you mean making an NOI adjustment in the Sales Approach or "adjusting" a non-stabilized NOI in the Income Approach?
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Old 11-08-2011, 09:03 PM
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Many national tenants have credit ratings published by Moody's, S&P and Fitch. Those ratings tend to drive the cap rate.

For the cap rate ... national vs regional vs local .. yes I agree .. but NOI?
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Old 11-09-2011, 07:35 AM
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Originally Posted by PropertyEconomics View Post
For the cap rate ... national vs regional vs local .. yes I agree .. but NOI?
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  
Old 11-09-2011, 10:20 AM
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Originally Posted by PL1957 View Post
Do you mean making an NOI adjustment in the Sales Approach
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
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Old 11-09-2011, 10:35 AM
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Originally Posted by Michael S View Post
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.

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