Spring 2009 issue of Horizons

INDUSTRy u

REAL ESTATE

Valuing Commercial Real Estate By Bryan C. Keller, CPA, and Paul R. Zimny, CCIM, CPA, MBA, Vice President, Grubb & Ellis|Gundaker Commercial

In December 2007, if we would have forecast what was going to happen to the U.S. economy, you would have concluded we were crazy! Unfortunately, none of us will ever forget 2008. What started as a home building and mortgage crisis quickly and forcefully spread worldwide. 2008 turned out to be the perfect storm, worst nightmare or whatever else you want to call it – especially for the real estate industry, but we remain cautiously optimistic for 2009. It remains a very confusing time for commercial real estate owners, buyers, lenders and investors. Based on our experience, we have selected the top three topics that affect the valuation of commercial property – capital markets, capitalization rates and the long-term capital gains tax. We hope the following information will provide those interested in commercial real estate a “perspective” for making sound business decisions now and in the future. Capital Markets The attractiveness of commercial real estate to lenders and investors from 2004 to early 2007 reached levels that were previously unseen. Most lending institutions had confidence that the commercial real estate market would continue to perform at extremely high levels. As a result, credit spreads became extremely thin, underwriting standards weakened, developers brought less equity to the closing table, and debt and capital sources were readily available. Many of the participants questioned these standards as each new boundary was set; however, competition prevailed as it seemed necessary to lower lending standards to take advantage of the bullish market.

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u spring 2009 issue