Valuing Business Units

[Top Hat]

There are some units I'm interested in.

How's best to arrive at a valuation?

I assume it's generally a simple multiplier of the annual rent for the units, if so what's the typical multiplier (my guess 10 to 15)

Is that right? anyone with any experience, your thoughts would be welcome

 

[aquazoo]

I think a potentially more accurate measure would be to take the net present value of future cash flows in perpetuity.

Wikipedia has an article on NPV calcs. Excel has an NPV formula which makes working it out a bit easier.

Cash flows will be rent less any costs, including taxes.

Its always tricky to decide on a discount factor. I normally just put in a 12% discount rate, which is a fairly cautious rate.

Its also a good idea to flex your NPV calc for things that might go wrong. E.g what happens if you don't rent a unit out for a few months? What costs will there be if you need to sell?

The NPV figure you get represents the highest amount you should pay for the site, but for it to be a good investment you should be looking to get the units cheaper than this figure.

Hope this helps!

 

[mountie]

There are some units I'm interested in.

How's best to arrive at a valuation?

I assume it's generally a simple multiplier of the annual rent for the units, if so what's the typical multiplier (my guess 10 to 15)

Is that right? anyone with any experience, your thoughts would be welcome

I assume they are tenanted. The valuation will depend on sevaral factors:

Strength of tenant
Type of lease (FRI, IRI, parties obligations)
Location
Type of construction
Potential demand for the units
And so on...

To suggest a multiplier of 10-15x rental means you are looking at initial yields of 6.5-10%. This is a big difference and could mean the difference between a high street shop unit with national chain tenant on a 25 yr lease and a secondary 40 yr old industrial unit in the back of beyond let to a vehicle sprayer on a 5 yr lease.

More info is needed to give an accurate answer. (Commercial Valuer)

 

[Top Hat]

Thanks for the help, not sure if I'm any wiser though!

So I'll give you a bit more info (not that I have much)

From the scant info I've managed to gather so far there are 2 units, both with tenants, 1 with a 3 year lease, the other, I don't know.

Unit 1 - £1000 PCM
Unit 2 - £1500 PCM

So what are they worth?

 

[Matt1959]

I always thought it was down to square footage.

 

[mountie]

Thanks for the help, not sure if I'm any wiser though!

So I'll give you a bit more info (not that I have much)

From the scant info I've managed to gather so far there are 2 units, both with tenants, 1 with a 3 year lease, the other, I don't know.

Unit 1 - £1000 PCM
Unit 2 - £1500 PCM

So what are they worth?

What are:

Use class
Location (prime, secondary, tertiary, rural)
Lease details (FRI, IRI, type, etc)
Strength of covenant
Age and type of construction
Micro and macro economic factors

There is more to it than 'so what are they worth?'

Pay a few hundred quid and get a professional valuation from a local commercial valuer.