More and more investors are beginning to focus on transaction costs, and in less liquid market segments also on market impact costs. Clearly, good liquidity is an important factor in reducing market impact. International investors in particular are increasingly looking for liquid benchmarks and securities. This is reflected in the large cap bias found in many of the newer indices and exchange traded funds that are often based on very focused indices like, for example, the iBoxx Euro Liquid Corporate Index.
Investors’ benchmarks, strategies and horizons change. Indeed the pace of change has accelerated in recent years, be it moves from pure government benchmarks to aggregate indices, from broad market to large cap benchmarks, or to indices that include issuer constraints. In these circumstances, institutional investors are becoming more focused on transition costs as they change their benchmarks. Index series that encompass a wide range of benchmarks and styles with similar methodologies have an advantage here.
As I’m sure you have guessed, when I formulate my offer I disregard the other two income numbers and use my own projected figure, the one that takes into account the real property rents. The best part of this strategy is that because the numbers are real, they are easy to defend during the negotiation process.
This is how easy it is to verify income and how easy it is to catch these kinds of inconsistencies in the numbers. As I mentioned, income is often inflated, so don’t be shocked if the difference be¬tween the numbers on the pro forma and the numbers you project are in the thousands. That is common.
Before we leave the topic of income, let’s address future potential income. Recall that future potential income is the total income the property could generate at today’s market rents, 100 percent occupancy, and by taking full advantage of all other income opportunities. You may find through your income verification process that the reported rents are well below the market. This could be your ‘Advance to Boardwalk” card, so keep it close to your vest. It’s this kind of upside potential that property investors dream about. With income verified, it’s now time to turn our attention to expenses.
0