Nuovi LEGALS 10-01

appraisal
13 – SEARCHING FOR THE VALUE WITH INDIRECT METHOD FOR INCOME
CAPITALIZATION
The “capitalization value”, as historically put forward by Serpieri (“Il metodo di stima dei beni
fondiari” / “The method of estimation of landed property”, Florence, 1917, Prof. M. Serpieri), first
verified in principle by Michieli (“Estimo” / “Appraisal”, Bologna, 1975, Prof. I. Michieli) and then,
among others, by Castello (“Stima degli immobili – Fondamenti per la valutazione della proprietà
immobiliare” / “Estimating real estates - Fundamentals for the assessment of real estate property”,
Dario Flacconio Publisher, 2001, Prof. Arch. G. Castello), is the result of the capitalization
into actual income that some given goods are capable of producing.
In the given case, applying this method is of considerable importance, given that a
‘LUXURY SUITE’ with these peculiar features in the very center of Rome is very rare indeed.
An example, taken from the hotel business (to be found in http://www.baglionihotels.com/it/
regina-hotel-ba-glioni/suite/roman-penthouse-suit), one piece of real estate is rented out for the
daily amount of 14,000 Euros.However, in order to practice such activities, it is necessary tocarry
out a business that provides services that require specialized personnel. The
‘entrepreneurial’ activity called P, for example, is therefore not considered for the purposes of
this paragraph that refers to a economic rent only,(non entrepreneurial activity), although to highend
guests. Sticking to the topic of possible locations for important guests: the market expects
prices - without services - around 1,000 Euros per day per suite of a more modest apartment.
Therefore, considering daily incomes of around 4,000 Euros the annual one gain revenues of
around 1,260,000 Euros per year,deducted annual property taxes and annual maintenance.
Therefore, by applying the relevant method – which more specifically consists of financially actualizing
the constant and ongoing future profitability of a property, derived from the simplification
of the amortization formula – the conclusion is as below:
Cn = __a__ cr
where:
Cn = final capital
a = annual income
cr = capitalization rate
In this regard the conceptual principles introduced by Fisher are worth noting (I. Fisher, “La natura
del capitale e del reddito” / “The nature of capital and income”, Torino 1922). Fisher, remarking
on the exemplificative equivalence between capital base and flow, noted that the flow of future
monetary incomes (not considering, of course, the current state of affairs) “must presuppose a
continuous flow of future income and the corresponding rates of interest”, so that it may become
equivalent to the capital base (that is to say, the real estate, in our case) which is subject to evaluation.
Under the assumption of the assessment principle of “the permanence of conditions”, one can
determine the following capital generation, if the cr rate is set to 4% per annum(in euros):
Cn= a : cr = 1,260,000 / 0.04 = 31,500,000
That brings the total value to 29,500,000 deducting the redevelopment costs.