What is your general methodology for pricing your deals?
Are there any industry-wide "rules-of-thumb?" Or processes or procedures that are common in this space for determining pricing?
[{"id": "il4cjkd", "text": "What do you mean by this, pricing a building? I don\u2019t think this question could get more open ended\u2026", "replies": [], "depth": 1}, {"id": "il4lhtv", "text": "Over time things have changed, but recently, the industry in dominated by individuals pulling pricing out of their ass", "replies": [{"id": "il4ng9y", "text": "Lol this can\u2019t hit home and be anymore accurate than this\u2026. Especially in South Florida.", "replies": [], "depth": 2}], "depth": 1}, {"id": "il4q43z", "text": "1. Property tax assessment.\n2. Potential CAP rate.\n3. Redevelopment potential.", "replies": [{"id": "il59pwk", "text": "u/honobob  Sending up the cap signal on this post", "replies": [{"id": "il5cqze", "text": "Man, CapMan slow to respond here.  One hour 50 minute wait at a Texas Roadhouse 30 miles from San Fran.", "replies": [], "depth": 3}], "depth": 2}, {"id": "il89su3", "text": "1.  Property tax assessment generally is a legal created \"value\" and generally is not the same as market value.\n2.  What is a \"potential CAP rate\"?  There should be a narrow range of what similar properties are trading at.  Just like sales comps you determine cap rate comps that match the property closest. \n3.  Highest and best use and excess land would be a first step in valuation.", "replies": [], "depth": 2}], "depth": 1}, {"id": "il4qrzc", "text": "PSF for real estate, Cap rate for leases", "replies": [{"id": "il70pk5", "text": "How do you come out with psf number?", "replies": [{"id": "il70upi", "text": "Comps", "replies": [{"id": "il71gim", "text": "Isnt this a bad idea because different properties generate way more or less for the square footage?", "replies": [{"id": "il9dm5m", "text": "They probably aren\u2019t appropriate comps then. You wouldn\u2019t compare flex/industrial to retail for example.", "replies": [{"id": "il9e77h", "text": "No you wouldnt but an industrial comps that is same year but much better layout with a better location generating far more income is going to have more value psf than another industrial comp.", "replies": [{"id": "il9eu45", "text": "Exactly - you\u2019d find something similar and build a range. It will vary but not that wildly in general between comparable properties. You can ballpark adjustments for some differences. \nYou try to buy at or below the bottom end.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "il5hswk", "text": "In my market (southern California), many brokers are allowing the \"market\" to decide the price. There is more property on the market \"unpriced\" than there is property on the market with a price....and then the highest bidder determines what the current market is.", "replies": [], "depth": 1}, {"id": "il6kx4u", "text": "Psf comps and getting the NOI to apply the market cap rate for that type of asset.", "replies": [], "depth": 1}, {"id": "il6znnj", "text": "Why does no one in this sub seem to use DCFs?", "replies": [{"id": "il71ohn", "text": "A DCF would still require you to assign a terminal value based on one of the traditional methods, capitalized income, sales comps etc to get terminal value. All the DCF does is account for the fact that sale takes place later and has a couple cash flows in between.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ilc3xu0", "text": "The only transactions I've worked on have been investment sales, a bit different than owner-user (when generating a price). We'll require the seller to present all income/ expense - input this data into our excel &amp; review. \n\nA common practice I see: sellers &amp; brokers alike will forget to input figures for vacancy, maintenance &amp; pm - making the deal look better than it actually is.", "replies": [{"id": "ilc7yoj", "text": "Does your spreadsheet eventually calculate a price based on cap rate? cash-on-cash yield? IRR? or some other metric? If so, what metric is the basis for your ultimate  price?", "replies": [{"id": "ilokqhv", "text": "Sales Price = NOI / Cap Rate\n\nRevenue - Operational Expenses = NOI\n\nNOI - Mortgage = Cash Flow\n\nIRR calculation is derived from cash flow numbers each year.\n\nCap multipler is used to quickly assess how much $ return you get for each dollar invested.", "replies": [{"id": "ilp9huc", "text": "Do you have any standard IRR targets? Or do you evaluate that on a deal by deal basis?", "replies": [{"id": "ilq89bq", "text": "They vary on a deal by deal basis and are laid out in our waterfall or operating agreements. So for example for one of our funds, we have first tier is 9% preferred return, second tier is 18% IRR, and third tier is pro-rata based on the amount of liability/risk a fund or developer is taking on.  \n\n\nNow obviously IRR can only be targeted when underwriting since you don't know actual cash flow numbers for each year. If a project goes horribly wrong, no profits would go down the waterfall because there are none to begin with and investors would lose money.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "ilcbb6m", "text": "NOI &amp; market cap rates", "replies": [], "depth": 2}], "depth": 1}, {"id": "iqgtqbf", "text": "My firm looks at levered IRR.", "replies": [], "depth": 1}]