Commercial Investment Real Estate May/June 2019 | Page 19

Investment Base for Dispose Alternatives To calculate the investment base of a potential sale and reinvest- ment in a new property, first calculate the available sales pro- ceeds after taxes from the current investment. The investment base for the “sell and buy” other real estate alternative then will be the sales proceeds after taxes from the current property plus any cash added to purchase the other real estate investment, less any cash taken out from the sale of the current property. The “sell and buy” investment base is calculated as follows: The investment base for an exchange into the newly acquired – – = – = Sale Price Cost of Sale Mortgage Balance Sale Proceeds Before Tax Tax on Sale Sale Proceeds After Tax Sale Proceeds After Tax + Any Cash Added to Purchase the “other real estate” or – Any Cash Taken Out from the Sale of the Current Investment = Investment Base in “exchange” alternative property real estate is similar. The sales proceeds after taxes from the sale of the current investment plus any cash added in the exchange, less any cash taken out during the exchange is the investment base for this alternative. The “sell and buy” investment base is calculated as follows: – – = – = Sale Price Cost of Sale Mortgage Balance Sale Proceeds Before Tax Tax on Sale Sale Proceeds After Tax Sale Proceeds After Tax + Any Cash Added to “exchange” into the “other real estate” or – Any Cash Taken Out from the Sale of the Current Investment = Investment Base in “sell and buy” alternative In addition to IRR, these hold-versus-dispose alternatives can be compared using net present value and capital accumulation. The future capital accumulation and the net present value for each alternative can be calculated using the projected cash flows and sales proceeds from each alternative and then applying the appropriate reinvestment or discount rates. Joseph A. Fisher, CCIM, is the president of Fisher Investment Real Estate in Indianapolis. Fisher has been a CCIM Institute instructor since 1980 and was CCIM Institute president in 2007. Contact him at [email protected]. Editor’s note: This article was adapted from the course “Disposition Analysis for Commercial Real Estate.” In addition to a discussion of investment base, the course explores numerous sample problems and case studies to hone hold-dispose analysis. For more information, visit www.ccim.com/education. CRE Analytical Methods and Models New Designee-Only Courses Refresh Your Skills and Earn CE Credit The Robert L. Ward Center for Real Estate Studies is pleased to offer four new designee-only, online self-paced courses covering core CCIM concepts. Designees can register to earn real estate CE credit or take the courses at a reduced rate without CE credit. Earn your CE credit by taking the following Ward courses. Comprehensive review of CCIM designation core concepts including fi nancial, market, investment and user decision analyses. CRE Market Analysis Decision Models Comprehensive review of how ow o w to perform market research, assess market d demand, and forecast m a future demand and op opportunities for commercial p real estate investment. ent. en e n t nt CRE User Decision Decision Models Comprehensive review of the space acquisition process, comparative lease analysis, valuing leasehold interests, and lease exit strategies. CRE Investment Decision Models To learn more, visit www.ccim.com/education or call [phone], opt. 2 CIREMAGAZINE.COM Comprehensive review of applying key investor decision-making analyses to optimize ROI, fi nance CRE investments, and effectively forecast investment performance. May | June 2019 17