Journal of Property Tax Assessment & Administration


Many appraisers rely on the income approach to value industrial properties by forecasting the cash flows and then discounting those cash flows to present value. Unfortunately, the data necessary to estimate a discount rate usually come from highly liquid securities markets. These data reflect discount rates necessary to value highly liquid stocks and bonds and may not reflect the discount rates that buyers and sellers use to value highly illiquid physical properties. In addition, stocks and bonds offer a number of benefits that actual ownership of physical properties does not, such as the ability to sell a small piece of the investment to get cash if needed; limited liability; and avoidance of the management hassles of hiring, firing, and training workers as well as complying with the myriad of accounting, disclosure, and regulatory requirements involved in owning an actual physical property. As a result, it is improper to use securities data without adjustment for valuing physical properties.

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Securities, Valuation of commercial property