Why do some properties command valuations based on forward estimated income, whereas others on past income?
The simple answer is because of the average lease lengths and the extent to which those existing tenant leases inspire confidence in the buyer of the property to believe that they are likely to continue to receive the property’s in-place income stream.
To elaborate, let’s look at the average lease lengths of the various income-producing property types:
- office/industrial/retail – 5 to 10 years
- multifamily – 1 year
- self-storage – 1 month
- hotel – 1 day