Why I Can’t Just Tell You What Your Building Is Worth

“Can you just swing by and tell me what my building is worth?”

I can swing by. I can look at the building, the condition, the access and the surrounding properties.

I can confirm that it is, in fact, a building.

What I cannot do is give you a commercial property valuation that survives contact with a buyer, lender and appraiser based on a fifteen-minute tour and the price of the building down the street.

Commercial real estate does not have a Zestimate. It has income, leases, expenses, risk and a truly impressive number of spreadsheets named some version of FINAL RENT ROLL 3 ACTUAL FINAL.

The first question is what kind of property I am valuing. A vacant owner-user building may trade primarily on price per square foot. A stabilized investment property is usually valued based on its net operating income. Land may be valued through comparable sales, residual land value or what can actually be built on it after setbacks, stormwater, wetlands, parking and whichever governmental agency has joined the conversation.

Same dirt. Different math.

If it is an income-producing property, I need the rent roll, but I also need the leases. The rent roll tells me what you believe the tenants are paying. The bank statements tell me whether they are actually paying it. The leases tell me whether they are legally required to continue paying it.

Those are three separate questions. The answers are rarely in the same file.

Then I need the lease term, renewal options, rent escalations, expense reimbursements, security deposits and any side agreements that were apparently too emotionally significant to put in writing. I need to know whether a tenant has an option at market rent or an option at a number negotiated when fax machines still felt efficient.

Being fully leased does not answer any of that.

A fully occupied building with strong tenants, documented leases and years of remaining term is an investment. A fully occupied building with six month-to-month tenants is a group project.

Then we get to the expenses.

“I don’t have a management expense.”

You do. You are the management expense.

You have simply been donating the labor required to collect rent, coordinate vendors, handle bookkeeping and explain to a tenant why the rear parking area cannot become permanent boat storage.

“I don’t have repairs.”

You had repairs. They are just sitting in QuickBooks under “improvements” because that made everyone feel better.

“I don’t need reserves. The roof is fine.”

hahahahahaha. Okay. 

A buyer is going to normalize management, repairs, reserves, insurance and vacancy whether they appear on your spreadsheet or not. The lender will do it too, only with less interest in your opinions and explanation.

Property taxes are another favorite surprise. Your current assessment may reflect years of capped increases. The buyer’s underwriting needs to account for a post-sale reassessment at just value. The county does not care that the higher tax bill was not in your original pro forma.

Neither does the buyer.

Then there is the market itself. Brevard County is not one interchangeable commercial real estate market. A medical office building in Melbourne, a contractor warehouse in Cocoa, retail in Viera and industrial land in Titusville may all sit within the same county and attract completely different users, rents, investors and financing.

This is why the property down the street is not automatically your comp. It may have similar square footage and the same zoning code, but it may also have better tenants, longer lease term, cleaner financials, newer improvements or a completely different buyer pool.

I cannot tour the building, look thoughtful for thirty seconds and announce one permanent number.

What I can do is prepare a broker opinion of value that shows what the property is likely worth today, what it could be worth after cleaning up the leases and operations, and exactly what would need to change to reach the higher number.

Most owners do not actually need someone to blurt out a value.

They need a map between the property they own and the price they want.

That takes more than swinging by.