9 NOVEMBER 2024PropTechOutlookmetric is that it does not take the property's income into account and could lead to inappropriate comparisons. For instance, while a $70 per square foot building may seem like a great deal compared with a similar building priced at $100 per square foot if the $100 building is occupied and the $70 is not, the more expensive building might be a better deal.Cash-On-CashGiven that commercial RETURN on real estate ownership is frequently a means to the end of earning investment profit, the latter three metrics are better representations of the property's value.Capitalization (Cap) RateThe cash-on-cash return is very similar to a cap rate, though it is calculated on an after-leverage basis. Instead of dividing the property's Net Operating Income (NOI) by its price, divide its net cash flow after subtracting annual debt service by the down payment. This considers the contribution that the positive leverage available in many markets can make. Most investors use the cap rate to value and compare properties. Since cap rates come from dividing a property's price into its NOl which is its income after operating expenses, it looks at what really matters to most investors - the relative degree of the property's profitability. Cap rates let you compare investment options on an apples-to-apples basis and determine if they can meet your client's near-term unleveraged cash flow goals.Gross Rent Multiplier (GRM)Calculated by dividing a property's price by its annual Gross Rent or Gross Income, the GRM helps you judge what your client is paying for a property relative to its income. Because it excludes expenses from the equation, the GRM is useful when you are looking at a property where the expenses are. Taken together, these four metrics give owners and prospective buyers a sense of a property's value relative to other properties, relative to its income, its profit, and the financing markets.In the Lone Star state of Texas, industrial construction activity is still high, as was seen in the previous quarter, with about 57% of the 20.3 million square feet of space anticipated to be delivered in the first half of 2023. This essentially keeps it a strong market and provides little immediate relief for tenants looking for new premises. As a result, developers continue to have faith in the industry, with speculative building accounting for 78% of the pipeline and fueling industrial expansion.Maximize OpportunitiesFor our organization at HOLT the real estate business must view every parcel as a possible source of revenue. As head of real estate, I meet with President Corinna Holt Richter on a monthly basis, however, I am unable to disclose what is on the horizon at this time. More than a dozen big projects are now active, and we are actively working on seven acquisitions. Regarding the 118-county reach of HOLT CAT the vision currently is that we're moving into a couple of other markets with key high growth. We are looking into the possibility of acquiring various land parcels for development. HOLT CAT is the nation's largest dealer, leaser, and servicer of heavy Caterpillar equipment and engines used to build roads, bridges, and a variety of other projects from the Red River to the Rio Grande with headquarters in San Antonio, TX. Real estate is quite likely to outperform other traditional assets, including equities and especially fixed-income investments, on a long-term basis given the uncertain macroeconomic environment now in place
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