Colli Real Estate

This regards the appropriate discount rate for discounted cash flow analysis in commercial real estate deals?

I know it is very difficult to come up with such a thing given how dissimilar any two properties are. So I just want to know if I’m even in the ball park. My gut feeling is that an appropriate risk premium for a well-rented property in a good location (in a ski resort town) is around 1.5 to 2%. If one adds that to a 10-year bond rate of say 4.7% one gets a disount rate range of between 6.2 and 6.7. This would be for an all-cash deal, I’m guessing. For a financed deal, one would have to add in the bank’s risk premium of say around 1.5% (or so?) on the financed portion, correct? I know this is long-winded, and I am obviously a neophyte, here, but any help is much appreciated! Thanks!

The market is chaging very rapidly now, as is the financing rates.
Your analysis works to some extenet – but more of what the banks were looking at about a year ago.
Now there’s alot of other factors to keep in mind such as the overall real estate markets dropping out at 4% on a monthly basis. .but you are putting on the table cash flow analysis for investment properties- and that dropping market is going to cause most investors to look at other options, as it will cause the “banks” to look at only investing in more stable markets.
If you are looking over a deal in a “prime” ski resort town – i would definately recommend persueing it – thing is -dont count on the income being as high as you think- and expect alot more risk, add 20% to your risk factor, that might be more than reality proves- but its a safe amount to actuallt stay safe for a few years.

If you have a company to do it now at 7.0 then jump on it. now is the time to invest your money so as long as your investment is good- well the rates are only going to go up

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