Toronto Land Values May Exceed New York’s
I read a recent article in Bloomberg Businessweek (June 27-July 3, 2016) that broke out land rent for Donald Trump’s building at 40 Wall street.
They report, “Trump currently pays $1.65 million a year to the group that owns the land underneath the building, which includes heirs to a German shipping fortune.”[copyright Chris Ruvolo]
I roughly measured the area of the site on google maps; it’s around 32,291 sq ft. This is very approximate.
Now how do you go from land rent to land value?
You need to use a cap rate, r, that’s how.
r = NOI/value
value = NOI/r
where NOI is net operating income.
Well fortunately, the Bloomberg article also gives us the NOI for the building (which simply equals the net net net rent or triple net rents for the building) divided by the building’s value (excluding land).
We have those two numbers:
$20,000,000/year triple net rents (ie, rents net of operating costs, property taxes and utilities–in commercial leasing, tenants pay pretty much all of a landlord’s costs).
Estimated building value = $550,000,000
So the building’s cap rate is $20,000,000/$550,000,000 or 3.6% pa.
Applying that to the NOI for the land, gives a land value of:
$1,650,000/3.6% = $45,375,000 or $1,405 USD per sq ft.
In my my book, Don’t Back Down (Dec 2015), I estimated the value of Toronto land at $1,920 per sq ft. That’s in Canadian dollars.
Using today’s exchange rate ($1.29), we get:
NYC land value $1,405 per sq ft USD
TO land value $1,488 per sq ft USD
Essentially, they’re virtually in a dead heat, but I suspect Toronto has the momentum and will soon surpass New York as having North America’s most valuable downtown land.
@ profbruce @ quantum_entity
postscript: here are my calculations:
postscript 2: a subsequent Bloomberg article suggests NYC’s real estate market is in fact slowing down, https://www.bloomberg.com/news/articles/2016-09-07/manhattan-s-luxury-real-estate-slowdown-is-spreading-to-other-price-tiers?utm_content=business&utm_campaign=socialflow-organic&utm_source=twitter&utm_medium=social&cmpid%3D=socialflow-twitter-business while the Financial Post reports that “Toronto home sales up 23.5 per cent in August (2016)”, https://business.financialpost.com/personal-finance/mortgages-real-estate/toronto-home-sales-up-23-5-per-cent-in-august-realtors-vow-to-study-foreign-investors.
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