#caprates

TenantSee Weekly: What's the Rate

TenantSee Weekly:  What's the Rate

If you look at the quarterly market reports provided by all major real estate service firms (Cushman & Wakefield, included), you will find that rent data is typically expressed in terms of “Asking Rents”.  Reports will cite the trend in Average Asking Rents by submarket, or by building class.  This is a somewhat misleading indicator.  Why?  Because it does not reflect the rent after negotiations, which often includes reductions in rate from the Asking Rate and potentially significant landlord-funded concessions.  In other words, Asking Rents reflect what landlords are asking, not what they’re getting.

TenantSee Weekly: The Value of Your Lease

TenantSee Weekly:  The Value of Your Lease

People sometimes (mistakenly) think office building values are based on location and architectural design (appearance).  These are contributing factors, however, in most urban centers, investors use the income capitalization approach to valuation.  Here, the building is valued on current and projected net operating income (“NOI”).  To be sure, location and design will translate to differing levels of NOI.  But other variables play a key role, as well.  For example, the landlord’s cost basis which impacts its ability to lease space at market pricing.  Where a landlord has paid too much for the asset, the underlying rental economics of the market may result in net negative leasing outcomes, causing the landlord to lose deals to other assets which have a lower cost basis and can productively transact at market.

TenantSee Weekly: The Ingredients Matter

TenantSee Weekly: The Ingredients Matter

Strategy is to occupier real estate what a recipe is to a great meal.  A recipe is more than the sum of its parts.  It’s about how each ingredient is prepared, how and when it’s added to the mix.  As with any recipe in which there are primary ingredients, vital to its success, similarly, every great strategy requires 3 main parts:

TenantSee Weekly: The Negative Deal

TenantSee Weekly:  The Negative Deal

Investors invest in office buildings to generate a positive return on their investment.  Return is created in 2 primary ways, one is through ongoing profits generated from the individual leasing transactions completed within the project, and the other is through financing activities (taking on debt which allows the investor to pull equity from the investment or selling the asset).  This TenantSee Weekly is focused on the first of these 2 scenarios, the one in which the landlord seeks to create positive cash flow through its leasing activities.