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Financial Modeling

Financial Modeling is essential for making decisions  to acquire, keep or sell investment real estate. The central aim is to provide a framework evaluating options and risks. Financial modeling is also utilized for decisions regarding material capital expenditures and leases.

Financial Modeling

Financial Modeling is essential for making decisions  to acquire, keep or sell investment real estate. The central aim is to provide a framework evaluating options and risks. Financial modeling is also utilized for decisions regarding material capital expenditures and leases. Financial modeling is used regularly by operating businesses to make a variety of decisions. Properties with multiple complex leases particularly benefit from the use of complex software such as Argus to evaluate the effect of leases terminating and being renewed overtime. Financial modeling is also used to evaluate complex iterative scenarios with multiple options.

Research and analysis for the subject property or business, industry and submarket is the first step in preparing a financial model. The financial analyst reviews three to 10 years of historical data including both revenue and expenses, with as much detail as possible. (In many cases, 30 to 100 line items of expenses are analyzed.) "Spreading the data" provides insights into typical levels of revenue and expenses and anomalous data points. Industry data such as IREM and BOMA for real estate provides additional context for evaluating whether historical expenses are typical, low or excessive. There are similar industry data reports for a variety of businesses, organized by SIC code.

Research and analysis regarding the current status and health of the market and probable future prospects for the market are the next step in preparing a financial model. For real estate, data such as occupancy rates, rental rate trends, economic vacancy, properties under construction in the metropolitan area, properties under construction in the submarket, proposed construction in the metropolitan area, proposed construction in the submarket, and likely trends for operating expenses are considered in developing a financial model. Similar financial model research is performed for operating businesses to gain insights into current and future trends.

The financial model considers both historical data and research regarding the current health and outlook for the market. The conclusion is summarized in a presentation of probable future cash flows. In some financial models, multiple scenarios are prepared to address the possible impact of uncertain material influences. Analysis of the cash flows often includes calculations of net present value or internal rates of return (IRR).

O'Connor & Associates has prepared financial models of income and expenses and projections of future income and expenses for over 10,000 commercial properties. O'Connor and Associates is the largest independent appraisal firm in the southwestern United States and has over 40 full-time staff members engaged full-time in valuation and market study assignments. Their expertise includes financial models, valuing businesses, commercial and single-family real estate, business personal property, purchase price allocation for businesses, valuation for property tax appeals, partial interest valuation, estate tax valuation, expert witness testimony, and valuation for condemnation. They have performed over 20,000 appraisals since 1988.

To obtain a quote or further information regarding financial model, contact To obtain a quote or further information regarding financial modelBusiness Management Articles, contact Larry Brewster at 713-686-9955 or fill out our online form.

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ABOUT THE AUTHOR


O'Connor & Associates is a national provider of commercial property real estate consulting services including commercial real estate appraisal, business personal property valuations, tax deduction, market study, condemnation appraisals, & lease audits.Our services benefit owners of all commercial property types including multi-family housing, retail stores, hospitals, hotels, industrial properties, manufacturing facilities, medical offices, commercial offices, restaurants, self-storage units, shopping malls, shopping plazas & warehouse/distribution centers.



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