There are 2 components to a management rights complex:
Managers unit and office area
Management Rights Business
The managers unit is normally located near or adjoining the office. The value of the managers unit is based on the location, size, type of complex, additional storage area and age. A premium of 10 – 15% can be applied to the value of the unit, as it is the only unit in the complex that is allowed to operate a management rights business.
The value of the business is determined by the net operating profit by a multiple of between 3.5 – 5.5 times. The net operating profit is calculated by deducting the core operating expenses from the gross receipts for a specific period. The expenses exclude depreciation, borrowing costs, interest on loans and expenses of a personal nature including those of a business nature but not necessary to be incurred.
An example is below:
Net operating profit for the last 12 months = $100,000 x 4.85 = $485,000 (value of business)
The multiplier is based on supply and demand. The multiplier has been increasing over the past 10 years.
The average multiplier over the past 12 months with a net operating profit of $150,000 and below is just under 5 times.
The average multiplier over the past 12 months with a net operating profit over $150,000 is around 5.2 times.
There has been sales with multipliers around 6 times, however these are very large buildings and would be considered an exception rather than the normal sale.