Present Value Factor?

[PL1957]

With all due respect, and I mean that, from where do you obtain your discount rates? Do you extract them from income and expense analysis of sales, or construct them from band of investment analysis? I humbly request an education.

Since the discount rate for a property represent an investor's expectations at the time of sale, the only place you can obtain it is from talking to real life, actual investors. Investor surveys can give you an idea of how your answers compare to a broader, more general sample.

Trying to mathematically calculate a discount rate without discussions with market participants is merely mental masturbation.

 

[PropertyEconomics]

Since the discount rate for a property represent an investor's expectations at the time of sale, the only place you can obtain it is from talking to real life, actual investors. Investor surveys can give you an idea of how your answers compare to a broader, more general sample.

Trying to mathematically calculate a discount rate without discussions with market participants is merely mental masturbation.

Here here .... market participants will have analized competing investments and they will have an idea of a discount they would apply ... if they are market savvy that is and they are a great source of information.

 

[Rhombar]

Welcome to the forum Rhombar. It is a great place to debate cap rates on a Saturday afternoon.

Hi Tim. Thankyou very much. The welcome is much appreciated and I couldn't think of a better distraction while responding to requests for documents and interrogatories.

Grant

 

[Rhombar]

Since the discount rate for a property represent an investor's expectations at the time of sale, the only place you can obtain it is from talking to real life, actual investors. Investor surveys can give you an idea of how your answers compare to a broader, more general sample...

I remember asking an investor who specialized in buying shopping centers in the 100,000 s.f. size range, about a center he bought with the anchor space vacant, what rent he had anticipated for the vacant space. He said that the purchase was based on the existing income stream and whatever he could capture from the anchor space would be gravy. He filled it shortly thereafter with a local grocer. I never did decide on a discount rate for that transaction.

 

[PropertyEconomics]

I remember asking an investor who specialized in buying shopping centers in the 100,000 s.f. size range, about a center he bought with the anchor space vacant, what rent he had anticipated for the vacant space. He said that the purchase was based on the existing income stream and whatever he could capture from the anchor space would be gravy. He filled it shortly thereafter with a local grocer. I never did decide on a discount rate for that transaction.

Rhombar ... as I read your post above ... the discount is the difference between what the investor paid for the property (at existing income) and that of the center with the anchor spot filled (stabilized occupancy I would assume). It would be relatively easy to calculate the discount rate on this transaction based upon what the investor told you. All the information is there.

 

[PL1957]

I remember asking an investor who specialized in buying shopping centers in the 100,000 s.f. size range, about a center he bought with the anchor space vacant, what rent he had anticipated for the vacant space. He said that the purchase was based on the existing income stream and whatever he could capture from the anchor space would be gravy. He filled it shortly thereafter with a local grocer. I never did decide on a discount rate for that transaction.

Not all investors rely on discount rates. Some rely solely on a direct cap analysis. Many use some type of blend that's really neither fish nor fowl. Finding out how real life buyers and sellers make decisions is probably the most important part in analyzing income producing real estate.