As the market shifts, I have been commissioned by many owners, lenders and asset managers to place a value on their commercial property. I am quick to point out that I am not an appraiser, however, a commercial real estate agent can create a Broker Price Opinion or Broker Opinion of Value. It is a relatively quick assessment (usually 3 to 5 hours) of the property's value in the current market.
My most recent BPO was for a client wanting to know the property's value to assess their real estate portfolio. What an eye opener for the owner. In the BPO, one of the ways I was able to support the value was by using the current net operating income (NOI). I was also able to demonstrate the value once the NOI had been adjusted by lowering the expenses. I was able to do this by pointing out that the facts of the P/L statement. Baby Boomers will remember Joe Friday from the 1950's TV show Dragnet. Joe Friday was a detective and when working a case he would remind a witness to stayed focused to what they saw or heard. He'd say, "the facts please, nothing but the facts." So the fact of the matter, this apartment complex had +50 plus units and expenses that approached 70% of the gross income. Sale comps supported expenses of about 45% which falls in line with industrystandards. The difference in the property value using actual numbers from the P/L and from a proforma with 45% expenses was over $1,000,000. The difference in taxable income after debt service was significant as well, enough to send a child or grandchild to an Ivy League school. In this case, the power of the BPO gives the owner substance when addressing expenses with the property management. The property owner has a course of action; at the top of the list is to ask some direct questions to the PM on each line item of the expense ledger. I also suggest interviewing other PM's and what steps they would take on reducing expenses.