Bought for the income, valued for the income
A house is bought to live in. A commercial building is bought for what it produces, and the valuation follows that.
So the income approach leads. Not as a supporting exhibit but as the analysis that carries the conclusion, developed lease by lease rather than off a summary line: contract rent, escalations, expiry dates, renewal options, free-rent periods, who pays the taxes and the insurance, what the landlord is on the hook for. Sales of comparable buildings sit alongside it and the two are reconciled — with the report saying which carried the answer and why.
A commercial appraisal that reasons from price per square foot and stops there is not an appraisal of an investment. It is an appraisal of a shed.
Settle the interest before anything else
This is the expensive mistake in commercial work and it is made before an appraiser is engaged.
The same building has three different values depending on what is being valued:
- Leased fee — the owner’s position, subject to the leases actually in place.
- Fee simple — the property at market rent, unencumbered by those leases.
- Leasehold — the tenant’s position, where a below-market lease has value of its own.
A building fully let at rents well above market is worth considerably more as a leased fee than as a fee simple. Let well below market, the reverse. Which one you need depends on whether you are lending against the leases, selling with vacant possession, or valuing a tenant’s interest — and a report answering the wrong one is unusable and cannot be repointed.
Tell me which. If you are not sure, that is a two-minute conversation and it is the most valuable two minutes in the assignment.
The rate is the argument
On most commercial assignments the capitalisation rate carries more of the conclusion than any single lease does. A quarter point moves the number further than a vacant suite.
Which means it cannot be a figure lifted from an investor survey and dropped in. The report shows where it came from: sales of comparable buildings where the income was known, surveys as a cross-check, and the property’s own risk profile — tenancy quality, weighted lease term remaining, condition, location, what happens when the anchor’s option comes up.
If somebody challenges a commercial valuation, this is where they start. It should be the best-supported paragraph in the file.
Vacancy is a fact, not a problem to smooth
Where a building is half empty, the analysis reflects that: actual occupancy, the realistic cost and time to lease the space, market rent for what is being offered.
What it does not do is quietly present a stabilised figure — a value for a building that fills itself on a schedule nobody has committed to. Where a stabilised conclusion is genuinely useful, it can be developed alongside as a second, clearly labelled figure with the assumptions behind it stated. Two honest numbers beat one optimistic one.
What I need, and why the documents set the clock
Every lease, with amendments, options and side letters. A current rent roll, and a stacking plan where the building is multi-tenant. Two to three years of operating statements. Capital expenditure history and whatever is planned.
Access to all of it — including the vacant suites and the roof, which is where the expensive surprises live.
Turnaround on commercial work is usually set by how quickly the lease documents arrive rather than by the analysis. A complete package on day one is the single biggest thing a client controls.
What this report will not do
It will not estimate remediation cost on a contaminated site. I am not an environmental professional and an appraiser who improvises that figure is doing something worse than declining to.
What the report does is state what was disclosed, what was assumed, and whether the value is given as though the site were clean or as affected — identifying any environmental report relied on. Which of those you need is a question for counsel, and it is worth asking before ordering rather than after.
New Jersey licensing note: general commercial assignments require a state-certified general appraiser. If your matter needs a credential I do not hold, you will be told that on the first call rather than after an engagement letter.
New Jersey specifics
- Industrial and flex space along the Route 46, Route 3 and Route 21 corridors, and the warehouse market feeding the port, are the strongest segments in this service area — and the ones where the rent evidence moves fastest.
- A great deal of Northern New Jersey retail is legally non-conforming under current zoning. It matters because it bounds what could be rebuilt after a loss, which is a lender's question as much as an owner's.
- Environmental history is a live issue on older industrial sites here. An appraiser is not an environmental professional: the report states what was disclosed and what was assumed, and where contamination is known, the valuation says on what basis it proceeded.
What you receive
- An income approach developed lease by lease, with vacancy and collection loss supported
- A capitalisation or discount rate drawn from market evidence and explained
- Sales of comparable buildings, adjusted and reconciled against the income conclusion
- The interest appraised stated explicitly — leased fee, fee simple or leasehold
- A highest and best use analysis, as vacant and as improved
- Signed USPAP certification
What I need from you
- Every lease, including amendments, options and any side letters
- A current rent roll and a stacking plan where the building is multi-tenant
- Two to three years of operating statements
- Capital expenditure history and anything planned
- Access to the building, including vacant suites and the roof