Commercial Real Estate Appraisal

How to calculate the effect of  above-&- below market rents on real estate value Contract rent that is above-or-below market rent affects the value of the leased-fee-interest in commercial real estate.  The following discussion tells you how to calculate the affect. Assume a 10,000 SF Building with 15 months remaining on the lease. Step 1 Convert contract rent PSF to a net equivalent rent.  For example, if the contract rent is $24.00 PSF on a full service basis, subtract the operating cost PSF to arrive at an equivalent NNN (triple net) contract rent.  If the operating expenses are $8.00 PSF, the equivalent NNN or net rent would be $16 PSF. Step 2 If the market rent is $18 PSF, NNN the difference is $2.00 PSF.  Based on the sssumed 10,000 SF building, the difference is $20,000 per year or $1,667 per month, multiplied by 15 months = a loss of $25,000. The Income Summary page should first show the value of the property based on market rent. Then, on the last r...