Dixie and the DCF

Property sales tend to trigger changes in assessments. But assessments should be based on market value, not leased fee value.

In her capacity as Any Municipality County’s Commercial Real Property Analyst, Dixie Phair is thinking about using a DCF analysis on a new mixed use building. Her DCF will consider the same factors that are important to the developer and the lender. She then imagined herself strolling past the new development, in the shoes of the folks involved…

diner_4.png

Up and ready for work, the developers jump in the SUV, off to the construction site for a mixed use development that was conceived, battled for, and built, risking most of what they have. It is the final walk-thru. And if all goes satisfactorily with the lender fund release, given an acceptable level of lease commitments from tenants, they will immediately list it for sale.

Up and ready for work, the lender jumps on the train, then into the office in the tower. A mandate requires placing $245M of investor funds in improved real estate. The lender knows another bundle of money looking for a home is coming, so this project needs a resolution that requires evaluation via DCF, using:

  • achievable rent for the property’s type, quality, location.
  • estimated lease absorption rate to stabilized market vacancy.
  • expenses relevant to this type of property and the local market.
  • a cap rate and discount rate that make sense for this investment.

Based on the DCF evaluation, it’s a go!

Back to the present, Dixie realizes that since the mixed use building is not yet fully leased, she must also perform a DCF. However, like you, she has hundreds of commercial properties to assess, so her DCF process must be efficient through automation. The fast & easy interview-driven DCF feature in IncomeWorks allows a reliable analysis to be performed quickly and accurately, in just a few minutes!