Price transparency is a vital tool for Commercial Real Estate (CRE) investors to leverage in their underwriting and investment strategies. Valuation in any sector or market comes down to valuing your investment and returns appropriately to empower your underwriting with informed data to make sure you're making the right decision at the right moment.

To do so you need to have the right comparison points to project what the expected value of a property is and what the bid-ask spread might look like. This informs your decisions whether to purchase, to hold, or to sell - and when to do so. However, with all property sectors still seeing declines in 1Q24 and appraised values declining as well, there simply isn’t much price transparency due to a lack of purchases and sales of comparable properties for many market participants to reference.

Why Use Price Transparency Tools

This is where CRE price transparency tools like Green Street’s Commercial Property Price Index (CPPI) become so integral to truly prepared real estate investors. Price transparency tools provide clarity as to how the market is currently valuing given properties. Green Street’s CPPI even goes one step further and specifically provides clarity as to what prices are today. This helps investors adjust their underwriting and valuations to more appropriately respond to current market trends. And the more informed your valuations, the more strategic you can be with your investment theses, etc.

There are several different metrics that are pulled into these projections and calculations. While we won’t dive into all of them here, you can get a glance of a few of the metrics that experts are keeping their eye on by accessing the definitions of all the below by logging into our Green Street Learning Center with client access.

CRE Metrics Used In Price Projections for Property Valuations:

1. Cap Rate
2. Operating Expenses Ratio
3. Gross Rent Multiplier
4. Occupancy Rate & Vacancy Rate
5. Net Operating Income (NOI)
6. Capital Expenditures (Cap Ex)

CRE price transparency tools can leverage customized formulas and live data pulled from a wide range of sources to give users a wider view of property pricing across the broader market on which they can rely. Price transparency tools like the list below are just a few you can leverage that are most widely trusted across the CRE industry.

Different Price Transparency Tools

1. Commercial Property Price Index (CPPI)®
   Green Street’s Commercial Property Price Index is a long-held time series that provides a snapshot of what value current CRE transactions are taking place. When based on the right data these CPPIs provide a vital context to the overall CRE market. The best CPPIs are distinguished by their timeliness, focus on high-value properties, and ability to capture changes in the aggregate value of any given sector.
2. Sales Comparisons (Comps)
   As the name implies, Sales Comparisons – or Sales Comps – allow real estate investors, brokers, and other market participants, to base their valuations on similar properties based on location, type, age, quality, and other metrics. Green Street Sales Comps even leverage a proprietary SmartComps algorithm to offer more accurate, comprehensive property data that is verified and enriched with market/sector analytics.
3. Automated Valuation Models (AVM)
   Automated Valuation Models create a custom model based on accepted and already recognized valuation approaches such as NOI Capitalization, Value Extrapolation, and Sales Comps to create a custom blended value of any given property. Green Street’s AVM is considered one of the most trusted and transparent AVM’s available today. AVM accuracy is substantiated by the back-testing results of the methodology white paper. For more details please request Green Street's AVM white paper. This is not part of the UK regulated business.
4. Market Repots and Analytics
   Leveraging Market Reports from trusted sources allows you to rely on multiple data inputs while also getting experts’ views on specific sectors that you can then plug into your own models by using tool integrations like Snowflake or Green Street’s Excel Add-In
5. Public Market REIT Pricing Insights
   You can even use insights from the public market to leverage in private investments. Extrapolating on what specific REITs are currently valued at and using these valuations to gain perspective on what you can value private market properties can also give you a guide rail for how to underwrite your investments.

Takeaways

Regardless of the methodology you embrace, the likelihood a price transparency tool like Green Street’s CPPI or AVM will save you time and effort is highly likely. By leveraging the unbiased and market-tested models of CRE experts, you can stand on the shoulders of giants instead of trying to climb your way to the top from square one.  So, get ahead of the market by leveraging the best price transparency tools you can and don’t let the lack of data in today’s patterns stop you from acting on the patterns of tomorrow.

Click here to request a sample report and learn more about what insights Green Street has to offer.