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How to do a back of the envelope analysis for developing a commercial office building

This post originally appeared on tBL Marketplace Partner Model for Success The REFM Blog and is republished with permission. Find out how to syndicate your content with theBrokerList.

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If you’re trying to determine if the asking price for an office development site will allow it to pencil, your first pass analysis should be a quick, back of the envelope calculation. Back of the envelope (BOTE) analysis purposefully solves for a fictitious stabilized yield on cost assuming today’s development costs and today’s rents and expenses, even though the property being contemplated won’t contract with a GC or be signing leases for at least a year.

Why do we use today’s values as the assumption inputs? The rationale is that if we could snap our fingers and the envisioned property would appear and be stabilized, and it does not produce a sufficient yield with numbers about which we have a high level of certainty, we don’t want to spend any more time on analyzing the same site with even more uncertain future assumptions values.

Our BOTE calculators have been in use for years, and are now appearing in a supercharged state on Valuate®. Our most recent one is the office building development BOTE. A video tour is below.

Try the BOTE Calculator now

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Jul 20, 2017Bruce Kirsch
2 years ago Marketplace Partnerscre technology, REFM, Valuate by REFM200
Bruce Kirsch

Bruce Kirsch is the founder of Real Estate Financial Modeling and the creator of the Model for Success blog. He holds an MBA in Real Estate from The Wharton School, and is the editor of the leading real estate finance textbook, Real Estate Finance and Investments: Risks and Opportunities. Mr. Kirsch graduated with a BA in Communication from Stanford University.

No returns - exchanges onlyCentral Pennsylvania Industrial Real Estate Report for Q2 2017
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