An investor is analyzing a mixed-use building in Brooklyn with retail space on the ground floor and rent-stabilized apartments above. The retail tenant has a 10-year lease at market rates, while the residential units are 60% rent-stabilized. Which valuation approach would be MOST appropriate for this property?
Correct Answer
B) Income approach with separate capitalization rates for retail and stabilized residential
The income approach with separate cap rates is most appropriate because this property has distinctly different income streams: market-rate retail space and rent-restricted residential units. Each component has different risk profiles, growth potential, and investor demand, requiring separate analysis. The retail space commands market rates with different risk characteristics than rent-stabilized residential income.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Various programs and exemptions exist to reduce the property tax burden for specific groups, such as seniors, homesteaders, or veterans.
A transfer tax is a tax imposed on the transfer of ownership of real estate.
Reconciliation is the final step in the appraisal process where the appraiser analyzes the value indications from all applicable approaches and arrives at a single final opinion of value. It is not a simple average of the three values.
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