Research of the Critical Capitalization Rate in Building Damage Appraisal

Abstract

From the perspective of building health monitoring and property management, this research proposes some parametric measures of the capitalization rate, in order to define a range of significant values to be used in a cash flow analysis intended for monetary evaluation in partial building damage assessment. If criteria and methods for appraising partial damage to buildings are widely shared in the scientific and professional communities, the identification of the most appropriate capitalization rate is rather more controversial, and certainly more complex. The proposed approach borrows the logical principles of cash flow analysis based on the yield capitalization approach, considering both recovery costs and loss of incomes when building partial damage occurs. The procedure is a differential valuation that considers a situation before and a situation after the damage, basing on the cost approach and the income approach. In particular, two distinct conditions are considered: the case of recovery interventions and that of improvement.