The investor would want a discount for present value.
They aren't going to give you 50 cents now for 50 cents they are
going to get from a meter 10 years from now, so you can invest it
and double the money.
They may as well invest it and double their money.
--- In AsburyPark@yahoogroups.com, "dfsavgny" <[EMAIL PROTECTED]> wrote:
>
> --- In AsburyPark@yahoogroups.com, "dsher4" <dsher4@> wrote:
> >
> >
> > The present value of that stream of free cash flows (assuming a
10
> > year deal with a 10% rate of return to the investor would be
8.258
> > million. After 10 years the meters would revert back to the
town's
> > ownership. So using those numbers an investor would be willing
to put
> > up 8.258 million to the town up front for the right to collect
1.344
> > million per year for 10 years. The investor gets a 10% return,
Asbury
> > get's a big up front payment to bridge a budget gap and the
meters
> > revert back to the town after year 10 so Asbury doesn't mortgage
its
> > future earnings power.
> >
> > Dan S.
> >
>
> Your math only holds true for a short period (no reversionary
> interest) and does not account for appreciation (increase in
parking
> fees). What do you mean by return? IRR or return ON capital or cap
> rate - a return OF and ON capital.
>
> There is a difference between YIELD (Y) and CAP (R) rates. Because
R =
> Y - Change in Value, if there is appreciation (increase in value as
> there always is - and would be in this case IF the operator could
> increase parking fees over the 10-year period), Y (yield, discount,
> interest rate or IRR) is almost always higher than the R (cap
rate).
>
> Thus, if the investor is looking for an IRR of 10%, the cap rate is
> lower. I was going to reply to oaks post that I would think a cap
rate
> of 6%-8% would be appropriate. Last year it was probably under 5%.
>
> At 6%, the $1.344M would be worth $22.4M assuming the income stream
> could be capitalized into perpetuity ($1.344/6%). Under something
like
> Oak suggests (75-year term) direct capitalization would be more
> appropriate than your discounting method, and even that does not
> account for an increase in the income over the 10-years. (a CAP
rate
> reflects the relationship between a SINGLE estimate of income and
> value, while a YIELD rate is the relationship between a SERIES of
> incomes and value.)
>
> The parking spaces in AP are very valuable but SHOULD not be
leased in
> my opinion, unless on a short-term basis with kickers and sharing
of
> revenues.
>
> Getting the money up front would only makes us blow it.
>
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