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Comments on "An Argument for Establishing a Standard Method of Capitalization Derivation".

Publication: Appraisal Journal
Publication Date: 01-JAN-09 		Format: Online
Delivery: Immediate Online Access
Full Article Title: Comments on "An Argument for Establishing a Standard Method of Capitalization Derivation".(Letter to the editor)

Article Excerpt
Once in a while an article is presented in The Appraisal Journal that has widespread, practical appraisal application. Eric Reenstierna's discussion of overall capitalization rate (OAR) calculation in "An Argument for Establishing a Standard Method of Capitalization Derivation" (Fall 2008) is such an article.

An OAR is not a fact. I therefore support Mr. Reenstierna's request to have OARs more fully understood and explained. It is instead a rate that is calculated based on different assumptions regarding potential gross income (PGI), vacancy, and expenses. The latter two are not factual as pertains to OAR calculation. The PGI is not factual either, unless the improvements are 100% leased. Even then, an appraiser may not choose to apply the stated lease income as PGI if the remaining term is short or on a month-to-month basis. The effect of meaningful above- or below-market rents at time of sale...

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