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Financial Metrics

All buildings from modest houses to the tallest skyscrapers have financial aspects. Building is a business with defined industry sectors dealing with design, construction, management, and investments. Financial concerns cut across the lifecycle of a building; the construction or acquisition cost of the building, operating costs and the asset valuation of the building.

The financial metrics of a building can be almost endless, however there is published data for comparable commercial office or investment buildings a building owner can use to evaluate whether their building is above or below average financial metrics of similar buildings. For example, the Building Owners and Managers Association (BOMA) annually publishes the "Experience Exchange Report” which is based on data collected from thousands of buildings. The report allows users to examine expenses and income for similar type buildings in a common locale or submarket. The examination of basic balance and income reports for a building for profit and loss, increases or decreases to income, expenses and asset valuation can be used to judge financial performance.

Perhaps the major financial metric of a building is its overall value. For commercial income producing buildings the value of the building is generally tied to the income stream, mainly the net operating income (NOI).The NOI is potential gross income, less building operating expenses, vacancies, and collection losses. The value of the building can then be estimated or calculated by using a revenue multiplier or capitalization rate of the building's NOI. If the building has been operating for a while and has a history of NOI, another approach called discounted cash flow can be used. This technique uses discount rates to projected cash flows or income and calculates a present value of the building. So income, expenses, occupancy, and rental rates all play a part of the valuation of the asset and determine the major metric of the financial performance of the building.

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