Gold Supporting Member
- May 2, 2002
- Professional Status
- Certified General Appraiser
Ellwood – A Beautiful Mathematical Formula But – Often Misused By James R. MacCrate, MAI, CRE, ASA I have had the opportunity to review many real estate appraisal reports over the last …
Commonly known as the Ellwood formula. No wonder why folks question real estate appraisals on commercial properties. This formula does not reflect the actions of informed real estate investors.
In developing the cap rate, it appears to be the old tactic of adding a multiple to the current T bill rate for a similar holding period is distorted by the intervention of the FED in rate suppression. If Fed fund rates reach negative territory (like in Europe) how can you used a negative cap rate? Seems to be that the market is demanding a far higher rate than Fed fund plus X times the Fed rate or your chosen equity fund rate related to current interest rates. High risk enterprises will demand rates that would not have any relationship to current Fed rates.