How to pull commercial comps

The owner of the industrial properties I have been managing may be interested in selling and I want to figure out their value. Which valuation method is best for industrial/commercial properties? Cap/GRM? The property is paid off so the net income is high. There is also some undeveloped land (a few acres). The city has zoned it so that no new industrial property can be built there.

My question is how do I comp the property? I have MLS access (Houston) but there are very few commercial properties on there. I don’t see how to get comps from commgate and some of the other commercial sites used.

Precise values are never based on GRM’s. These are just ballpark estimates of value, or numbers used to compare similar properties against each other without having specifici operating numbers. If you know the market GRM, then you can use that number to make a guesstimate as to the potential value of a given property (not on office/industrial properties).

GRM’s are rarely used to gauge value on anything, but multifamily residential units. CAP rates are what you want to work with when analyzing property.

CAP rates vary by market, region, demand, and further by age, construction and property type.

One building that is 80 years old might have a market cap of 12. Another building that is 10 years old might have a market cap of 6. The difference? Demand, location, cash flow potential, management requirements, vacancy trends, maintenance liabilities, etc., etc.

That being said, sophisticated investors will base their purchase price both on the actual numbers (not the “pro forma” numbers), and the prevailing CAP rate for this particular size, type, and location (etc.) of property.

The issue then is knowing both the market cap for your particular building, its location, and local market, coupled with actual operating numbers.

Of course CAP rates are defined as the rate of return on an all-cash purchase, and determined by taking the NOI and dividing that sum by the purchase price.

What are the possible risk of this move? Are there?