Investor intuition and market trends are invaluable as your firm strives to identify the best deals, but data should be the bedrock of modern investment decisions. Commercial real estate comps represent one avenue through which investors can tap into market insights for similar deals, harvesting the value of latent data to screen new deals.
Previously, comps might have only been available following a transaction, potentially buried beneath other data in a drive folder. The evolution of real estate technology, and particularly deal management technology, has made this information easier to gain and access. Read on to learn more about the role of commercial real estate comps, the data they can impart, and how modern firms leverage them.
What Are Commercial Real Estate Comps, and What Can They Tell You?
Also called comparables, commercial real estate comps provide investors with market intelligence in the form of data, such as prices on previous deals, which is useful in screening new pipeline deals.
There are two types of commercial real estate comps: sales comps and leasing comps. Sales comps are based on recent pricing or sales data, and help investors to learn how a property’s price compares to market value. Leasing comps, on the other hand, are used by asset management teams to project potential ROI. In this blog post, we’ll focus mainly on the value sales comps deliver to investors.
Comps from the same sub-market as a pipeline deal can yield tremendous insight when gauging how a deal is priced according to current market conditions. For this reason, comps from other markets or asset classes won’t provide the same level of insight. After all, how could a 40-unit multifamily acquisition in Atlanta add clarity about a similar deal in Kansas City?
The closer two properties are when it comes to their size, age, quality, features and other variables, the more insight comps lend. However, that’s not to say that mismatched comps are devoid of value. It’s not uncommon for investors to adjust prices after accounting for size, age or other discrepancies.
Comps empower investors to act with confidence that their projections are supported by data.
What Data Should Be Included in Commercial Real Estate Comps?
Commercial real estate comps are powerful tools, but only when they include data relevant to investment decisions. For maximum value during the screening process, real estate comparables should include:
- The property’s address
- The property’s sale price
- The cap rate
- The projected IRR
- The net operating income
- The asset class or property type
- The names of the firms that bought and sold the property
- The date of the transaction
- The size of the building
- Operational costs
With deal management software, investors can track any other metrics that might add value for screening future deals. For example, investors may choose to track one or several of the metrics above, like price, in terms of square footage.
Dealpath allows firms to track unlimited data fields, helping investors to quickly reference any aspect of a transaction they choose to record.
Modern Best Practices for Finding and Using Comparables
Public record databases may offer some information, but finding relevant data can be time-consuming, particularly for commercial properties. Paid third-party data from providers like Compstak can prove useful, but must be taken with a grain of salt, as it’s often outdated by the time it becomes relevant. When it comes to real-time market trends and insights, proprietary data about your target market is the most telling.
The way that investors store, find and leverage comps has naturally evolved with commercial real estate technology. Prior to purpose-built software, deal data was recorded in spreadsheets, which eventually landed in folders. Despite sufficiently archiving data, this approach made accessing and leveraging data challenging and time-consuming–without providing confidence in the final answer.
Deal management software has reimagined how investors screen and analyze deals. Searchable analytics tools help investors find the same answers faster and with stronger precision. This structured data allows for streamlined “apples to apples” comparisons, reducing decisions from hours to minutes.
For example, an industrial-focused firm managing deals in Dealpath considering an acquisition in Dallas could simply filter old deals for “industrial” and “Dallas” to access historical data. After a few simple clicks, they could learn everything they need to about recent deals and transactions they’ve logged.
7 Ways to Augment Your Existing Commercial Real Estate Pipeline Process
Reviewing more deals faster allows your firm to identify the best options on the market and deploy capital efficiently, but doing so can be difficult when starting every deal from scratch.
Download our white paper to learn how leading firms expedite their processes, without fundamentally altering their strategy or workflows.