the 10% takes all of that into account. Think of this as a bond to
the investor. Just like people put up a $100 to get a 4% guaranteed
return from the U.S treasury. Doubling your money requires some
risk parameters
--- In AsburyPark@yahoogroups.com, "justifiedright"
<[EMAIL PROTECTED]> wrote:
>
> 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" <dfsavgny@> 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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