Market analysis examines income and property value through lease comparables and sales comparables to understand the current real estate market, predict future trends, and evaluate development costs and potential income. It analyzes key metrics like market rent, capitalization rates, tenant improvements, rent free periods, and rent escalations for comparable properties to determine appropriate values. For example, several lease comparables and sales comparables are provided and list metrics like starting rent, lease terms, capitalization rates, and property descriptions to help assess the market rent for a property and determine what similar buildings have sold for.

1. Market Analysis
LearnCRE.com
Real Estate
Finance 101

2. LearnCRE.com
What is Market Analysis?
+ Why?
– So we can know where the market is, where it is going, and how to underwrite!
+ Feeding inputs: What are four main components of a Feaso?
– Costs
– Expenses
– Income
– Value
+ Market Analysis looks at Income and Value primarily via
– Lease Comparables
– Sales Comparables
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Costs to acquire and develop -
Recurring costs to the project -
Rents received +
Stabilized property value +

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Terminology
+ Lease Comps
– Net Effective Rent
– Market Rent
– Starting Rent
– Term
– TI allowance
– Rent free
– Straight Line Rent
– Rent Bumps/ Escalations/Adjustments
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+ Sale Comps
– Passing yield
– Passing Rent
– WALE
– Cap Rate (economic
– TI (amort)
– Reversion / Under-rented / Over-rented
– Capex

4. LearnCRE.com
Lease Comp Analysis
+ What are the following leases worth? Is the market rent $4.50?
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Term Lease 1 Lease 2 Lease 3
Start Rent $4.50 $4.50 $4.50
Term 3 15 10
TI $2 $5 $10
Rent Free 3 month 18 months 6 months
Rent Escalations $4.50, $5.50, $7.00 2.5% pa First 5 - $4.50
Second 5 - $8.00

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Sales Comp Analysis
+ What are the following buildings worth?
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Term Sale 1 Sale 2 Sale 3
Acq Price 50,000,000 25,000,000 25,000,000
Sqft 500,000 250,000 250,000
“Cap Rate” 4.5% 7% 10%
WALE 0.2 10 4.5
Description Class A building in
IEW, 32’ clr.
Class A distribution
building in LA, 75k
office included,
accommodates 100k
expansion.
Class B distribution
building, lease signed
in 2007

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Sales Comp Analysis
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+ Help!
Term Sale 1 Sale 2 Sale 3
Analysis Leasing/Vacancy Capex adjustment Reversion
Market Rent $5.25 $7.00 $6.00
TI Existing $2 $12 (overstd office) $2
Additional Value $3.3m (expansion land)
Leasing Costs
(TI+RF+LU+LC)
$15 - -
Extras 75k office?
Expansion land?
Reversion Yes? Yes?
Passing Rent $4.50 $7.00 $10.00
Other?
Term of Initial Lease 10 10 10
FAR 50% 50% 50%
TI (Tenant at lease
signing)
$0 $0 $0