Analyzing comparable properties and situations provides invaluable insights, especially in commercial real estate. Commercial Property Comparables, often referred to as “comps,” are a cornerstone of informed decision-making in the CRE sector. This guide delves into the world of real estate comps, explaining their use, benefits, and how to effectively leverage them for strategic advantages.
The Undeniable Benefits of Commercial Property Comparables
Commercial real estate comparables are indispensable tools for making well-informed decisions. They empower professionals to assess the viability of investments, understand market dynamics, and identify lucrative opportunities. Whether you’re evaluating a potential property acquisition or strategizing your leasing approach, comps offer critical benchmarks.
Leasing comparables are essential for investors looking to gauge the potential Return on Investment (ROI) of a property relative to similar assets in the market. By analyzing lease rates of comparable properties, investors can determine if a subject property is priced competitively and project potential income streams. Conversely, sales comparables provide insights into recent transactions of properties closely mirroring your subject property. This data is crucial for establishing realistic property values and negotiating favorable deals.
Comps facilitate a deep dive into a property and its surrounding market by providing tangible, relevant data points. They are widely recognized as the most reliable method for commercial real estate valuation, offering a data-driven approach to determining an asset’s worth. Beyond valuation, commercial real estate professionals utilize comps to uncover emerging trends and identify untapped potential within specific markets.
Establishing Commercial Property Value with Comparables
A primary application of commercial real estate comps is to ascertain the market value of a property. Comps enable professionals to tap into historical data from comparable properties, considering similar characteristics and market locations. This approach is inherently market-sensitive, reflecting the unique dynamics of each individual market. This localized relevance makes comps a highly accurate method for determining the current market value of any commercial asset, regardless of its type or location.
Uncovering New Opportunities in Commercial Real Estate
Beyond valuation, real estate comps serve as a powerful tool for opportunity discovery. Professionals familiar with the business potential of a particular property type can leverage comps to identify similar properties that align with their investment or business objectives. This opens avenues for strategic expansion and market penetration.
For instance, an investor with an existing property portfolio can conduct a comps analysis to pinpoint other properties that fit their investment criteria. Similarly, a roofing contractor who recently completed a renovation project can use comps to identify similar properties in need of their services. A sales broker can analyze comps of recently sold buildings to proactively approach owners of comparable nearby properties who might be considering selling off-market. The applications are vast and span across various CRE professions.
Deconstructing Commercial Property Comparables: Key Determinants
Historically, commercial real estate comps were largely based on property sales history. However, the modern approach incorporates a wider spectrum of data points to generate a more precise and comprehensive comparison. Advanced platforms, such as Reonomy, aggregate diverse property data to create robust comparables. While sales history remains a fundamental element, contemporary real estate comps also integrate layers of property, building, and transactional data. Beyond location, crucial factors include property type and subtype, last sale price, debt history, and a multitude of other relevant attributes.
1. The Foundation: Commercial Property Sales History
It’s crucial to emphasize that property sales records are the bedrock of real estate comps. Without this historical transaction data, generating accurate comps would be impossible. Platforms like Reonomy meticulously examine the complete sales history of a property, with particular emphasis on the most recent sale. Analyzing past transactions provides invaluable insights into a property’s value trajectory, revealing whether its value is appreciating, depreciating, or remaining stable over time. The recency of a sale directly correlates with its relevance to the current market value of a comparable asset. Furthermore, properties exhibiting similar trends in their sales history are likely influenced by comparable market conditions.
2. The Pulse of the Market: Recently Sold Commercial Properties
Data on recently sold properties is invaluable for refining real estate comps. By focusing on comps derived from recently sold properties, professionals gain a clearer understanding of the current market dynamics influencing these transactions, extending beyond the individual property level. Analyzing sales history data across a range of recently sold comps provides a broader perspective on the market conditions impacting your target asset.
3. Location, Location, Location: The Proximity Factor
The geographical proximity of properties is a critical determinant of their comparability. The fundamental question is: are the comparable properties and your target property subject to similar locational influences? To address this, platforms like Reonomy generate real estate comps primarily from properties situated in close proximity to the target property. Combining location data with property sales history data creates a powerful framework for understanding how market participants are engaging with specific property types within defined geographic areas, and anticipating potential influences on future transactions.
Getting Started with Reonomy for Commercial Property Comps
The Reonomy web application, powered by advanced AI technology, offers seamless access to property owner information, property records, company data, and tools to facilitate successful commercial real estate deals.
4. Delving into the Details: Building-Level Data
Real estate comps are also meticulously constructed based on the physical attributes of a property. Factors such as asset type, building size, lot size, condition, and age significantly influence a commercial property’s value. Therefore, identifying properties with structural similarities to your target property is paramount. The comprehensive data utilized by Reonomy to generate real estate comps ensures that users can identify properties that are not only subject to comparable market conditions and geographic locations but also possess similar physical characteristics to their target asset.
Mastering the Art of Finding Real Estate Comps
Traditionally, sourcing commercial real estate comps involved laborious manual research, sifting through public property records and compiling data for analysis. Reonomy streamlines this process, enabling users to efficiently identify properties with data points comparable to their chosen property. The starting point is simply the property address.
To initiate your comp search, simply enter the address of the subject property. Whether you’re directly researching a known property or have identified a property based on specific search criteria, finding comps is effortlessly achieved by clicking the “Find Comps” button, prominently located at the top of any property profile page within the Reonomy platform.
Clicking this button instantly generates a curated list of properties that closely match the criteria of your initial property.
Once you have generated a list of comparable properties, Reonomy provides further refinement options. You can apply additional filters to narrow down the results and eliminate less relevant properties, ensuring a highly targeted and insightful comp analysis. Let’s explore practical examples of common comp searches across various asset types and geographic locations.
Land Comps: Unearthing Value in Vacant Land
To find land comps using Reonomy, you can leverage parcel details such as lot acreage to identify comparable land plots. Furthermore, you can refine your search to target specific land subtypes. Reonomy allows you to find comps for farmland, commercial vacant land, industrial vacant land, residential vacant land, and more, providing granular control over your land comp analysis.
Multifamily Comps: Analyzing Apartment Buildings and Beyond
Multifamily comps can be identified by incorporating a range of filters. Similar to land comps, you can specify your search to different multifamily property types, including apartment buildings (categorized by units), duplexes, triplexes, mobile home parks, nursing homes, and other classifications. You can then refine your search by building area and number of units. After applying your desired filters, select any individual multifamily property and utilize the “Find Comps” button to discover comparable properties within a specific geographic area.
Example Scenario:
Let’s say you’re interested in Quadruplex properties in LA County built around 2016. Using Reonomy, you can search for this specific property type and location. Then, by selecting an individual property profile and clicking “Find Comps,” Reonomy will generate a list of comparable properties for your analysis. To further refine the results, you can apply a zip code filter within LA County, such as “90007.” This narrows down the list to properties within a more localized area, subject to more similar locational influences, providing a highly targeted comp set.
Comps by Zip Code: Hyperlocal Market Analysis
Adding a zip code filter is an effective method for geographically limiting your comp search. For even greater precision, combine zip code filters with filters for specific building data or asset classes within that zip code. For granular analysis, you can incorporate filters for the most recent sale price, zoning information, and other relevant criteria. Let’s examine a few example searches illustrating how to identify asset-specific commercial real estate comparables within different locations.
Example: Industrial Comps in Chicago
Consider searching for industrial properties in Chicago that have sold within the past 20 years. In Reonomy, after selecting a representative industrial property, simply click the “Find Comps” button. To refine the results, filter the comparable property list by a specific area code within Chicago, such as “60651.” This targeted search can yield a highly focused list of properties with comparable value within a defined geographic area, as in this example which returns two highly relevant properties.
Find Comps Based on Sales History: Leveraging Transaction Data
Sales history is a paramount factor in determining relevant comps. By identifying recently sold commercial properties that share similar physical characteristics (e.g., location, asset class, square footage, acreage, units, condition, age) with your target property and analyzing their sales history, you can gain a deeper understanding of your target property’s potential value. Reonomy facilitates this by allowing you to discover properties based on their sales history breakdown.
For example, searching for commercial properties sold within the last year for prices ranging from $500,000 to $700,000 provides a current snapshot of market values within that price range. Using the sales tab in Reonomy’s search interface, you can filter by most recent sale date or most recent sale price.
Once you’ve established your sales history criteria, navigate to a property profile page and click the “Find Comps” icon to initiate your search. While these filters are effective individually, their true power lies in combined application. Instead of simply searching for “multifamily properties” or properties in “Chicago,” a more refined search for “multifamily properties in Chicago that have sold in the last year for $500,000 to $700,000” will yield significantly more specific and valuable results, providing incredibly accurate and insightful real estate comps.
