Physical Risk Value Scenarios

Cured and Uncured Comparison

Valuation-method scope reviewed 2026-10-07: compare a defined baseline with complete cured and uncured scenarios. Use the Dated Cash and Residual Risk section below for incremental costs/recoveries, timing and residual cash/rate effects. A cost, lost rent, lasting income reduction and rate change may represent distinct mechanisms, but they are not an automatically additive haircut. A cure can remove the rent limitation; an already reduced rent schedule includes its downtime. Count each effect once and support any limitation that remains after work.

For the same positive compatible cap rate c and matching stabilized annual NOI in both cases:

Static Capitalized NOI Loss = (NOI_base − NOI_scenario) / c

Rent loss is not automatically NOI loss: reconcile recoveries, collection, vacancy and changed operating expenses. If caps differ, value each scenario separately; if income is temporary, changes through time or includes capital/lease cash adjustments, use the dated cash model. This static difference is not a universal present value of lost rent. CRE Valuation Methodologies owns the income method; Cap Rate Decomposition states the separate perpetual cash conditions.

Inherited inputs now explicitly assumed: a0.50/SF/year rent reduction on200,000SF gives100K annual gross rent loss. Only with no offsetting income/expense changes does that equal100K NOI loss, which at an independently assumed compatible6% cap gives≈1.6667M static value loss. Separately assume20K lower annual operating expenses: NOI loss is80K and the same-cap static loss≈1.3333M.

Alternative cure illustration, not feasibility evidence: to compare on one explicit cash basis, assume this80K net cash loss occurs at each year-end forever if uncured, zero growth, no other incremental cash adjustments and a matching6% annual discount rate. Its PV is80K/6%≈1.3333M. Instead assume500K cure cost paid now, only the first year-end80K cash loss, full restoration from year2 and unchanged rate: total PV loss is500K+80K/1.06≈575,471.70. Do not add the uncured perpetual loss to that cured case. These hypothetical assumptions do not establish a dock/slab repair cost, achievable rent, usable tenant pool or appraisal conclusion. Existing Source: Debt Yield Scope Review 2026 supports income/capital and direct-cap/DCF distinctions; the case is curator arithmetic, not an OCC formula or market benchmark.

Dated Cash and Residual Risk

Financial-method scope reviewed 2026-10-07. Distinguish known incremental costs, uncertain future costs/recoveries, residual value risks and funding constraints. A generic sum of remediation cost, a capitalized premium and a financing discount does not establish that the effects are independent or measured in compatible dollars.

For a simplified unlevered property model over a positive integer T of equal annual periods, with a compatible constant rate r>−1:

F_t = Base_property_cash_t - Incremental_environmental_cost_t + Collectible_recovery_t
V_scenario = F_0 + sum(F_t / (1+r)^t, t=1..T) + Net_terminal_proceeds / (1+r)^T
Value_change = V_base - V_scenario

Reconcile base property cash from the stated NOI definition and applicable capital/lease uses. Do not subtract operating expenses already included in NOI, or charge both a funded reserve and the same cash spending again. Include each incremental cost/recovery once. F_0 contains only the stated property costs/recoveries at closing, not the purchase price; subtract a proposed purchase price separately when calculating investment NPV. Terminal proceeds must not repeat costs or sale cash already counted in F_t, or add a sale on top of an infinite-stream value. Use actual dated discount factors for irregular timing and matching equity cash/rates if financing is included.

A reserve is a funding/allocation mechanism, not automatically a second expense. Map escrow funding, restrictions, payments, releases and any retained cash asset before deciding the buyer's net exposure. A negotiated seller price credit changes acquisition consideration; do not deduct it again as a cost. A contract, insurance limit or indemnity does not by itself establish a collectible recovery. This model does not determine legal liability, coverage, regulatory compliance or a site's actual condition.

Residual risk can affect cash flows and required returns in different ways; documenting both is not automatically double counting. Explain why each adjustment represents a distinct effect. Conversely, a cap-widening scenario already changes the capitalized value; do not subtract its computed value loss a second time, or attach another undifferentiated buyer-pool discount to the same mechanism. A known cost fully included in cash cannot be charged again as a separate known-cost haircut.

Assumed value bridge, not an appraisal or bid: Assume first year-end property cash equals NOI $1M, perpetual growth3% and a matching8% annual rate with no other cash adjustments: the Gordon model gives $20M and a forward cash/NOI cap5%. See Cap Rate Decomposition for that model's conditions. Separately assume an incremental $1M obligation paid at closing and not already priced in that base: net indicated amount $19M. If instead the same obligation is paid one year later, using an assumed compatible8% discount rate gives cost PV≈$925,925.93 and net≈$19.074074M. Cost timing matters; no available financing or remediation scope is established.

Separate residual-risk scenario: Keep NOI $1M but assume cap5.5%, with no new cost yet. Value≈$18.181818M, a change≈$1.818182M from the5% case. If a distinct unpriced $1M closing obligation is also assumed, the bridge is≈$17.181818M. Independence is an explicit teaching assumption, not something inferred from the words “cost,” “premium” or “discount.” Fraction and independent50-digit Decimal reproduce these examples. Neither cap nor discount rate is a current market norm.

Source: Debt Yield Scope Review 2026 supplies scoped primary support for cash/income definitions, capital analysis, direct cap and discounted income/net sale proceeds. The bridge is curator derivation, not an OCC environmental standard. Inherited cost ranges and other physical-risk/legal material remain outside this methods review. Use site-specific estimates and specialist evidence before treating them as current inputs.

Inputs and Related Owners

Use Underwriting Assumption Reconciliation for the common review of overlapping mechanisms and complete joint results. This page retains the actual cured/uncured, dated-cost and residual-risk valuation methods.

Use the same property interest, date, currency and cash scope when comparing cases. Identify assumptions, counterevidence, execution constraints and conditions that can change the result. A property-value indication alone does not select an investment without the investor's price, objectives, horizon and risk tolerance.

The 2026-10-17 ownership review preserves the original financial assumptions and examples. It adds no observed price, market rate, environmental finding, engineering standard, repair obligation or approved bid.

Sources

• Source: Debt Yield Scope Review 2026 — retained OCC support for capital/income projections, normal/stressed analysis, stabilized capitalization and discounted cash/net-sale distinctions. The scenario equations, perpetual cases and numerical examples are curator derivations with explicit assumptions.