As a rule, there are a number of factors that affect the change in the value of any property, that appears at various stages of the appraisal process. It is customary to distinguish three hierarchical levels: 1) the influence of global factors (social, economic, political, environmental and geographical), which indirectly affect the processes occurring with real estate in the market, and, therefore, on the evaluated object; 2) the influence of local factors (object location; physical characteristics of the property; terms of financing); 3) the influence of factors associated with the property (architectural, construction, financial and operational factors).

2.5 Methods of the real estate valuation

Valuation of real estate is a critical part of its management and development. The significance lies in the fact that an adequate and most accurate valuation reflects all the necessary information about property. Valuation is a methodologically sound expert opinion on the price of the object. The information necessary for the assessment of any real estate facility can be obtained from in specialized databases, in state and municipal bodies that carry out state registration of rights to property, in real estate appraisal and construction companies, and also in periodicals and various literature on real estate market. It that it is necessary to take into account all or the basic principles of the assessment in order to obtain a more reliable and accurate assessment of the value of the property and the principles of the user. One of the crucial points to remember in the process of a property evaluation is that it is important to understand for what period of time the expected income will be received, due to the reason that the ruble of an investor today is worth more than the ruble that will be received tomorrow.

Commercial real estate has the ability of generating income for its owner and (or) investor. Capital investment is beneficial only in case the estimated income exceeds the costs. Overall, the final decision to invest in real estate market is determined by the amount of income that the investor expects to receive in the future. For example, this income can be earned from future rents, the value of real estate during its resale, current cash receipts from the operation of real estate, etc. Multiperiod total return perspective on their future investment is the scope of investors' attention (Geltner, Miller & Clayton, 2013).

Adetiloye and Eke (2014) collected and explained different models of real estate appraisals, giving justifications for their use. Indeed, this article does introduce the reader to a multitude of property valuation options. The authors accurately and soundly described the relevance of the topic and the degree of importance of the concepts the article referred to, giving several reasons for real estate valuation. First of all, Adetiloye and Eke (2014) stress upon the fact that the true value of the property helps a lender and a borrower establish a reasonable estimate of the terms of the contract. Secondly, property evaluation helps to place a market price in juxtaposition to distinguish whether a property is overvalued or undervalued.

The current study is focused on the Income Capitalization method of the real estate valuation. Hence, it is worth to review this approach in more detail. Basing on the information from the article “A Review of Real Estate Valuation and Optimal Pricing Techniques” (Adetiloye & Eke 2014), theory investigates that the mentioned method is based on the current financing possibilities, property risks, and yield requirements of the investor. In brief, the income approach is based on the market value estimation by preliminary calculated an expected income the property would generate. The next step is to convert (i.e. discount) the income stream (i.e. future income) to reach the PV. Different techniques may be employed for that, including estimation of gross income multiplier (GIM), net income capitalization (NIC), and discounted cash-flow (DCF).

In more detail, the basis of the income approach is the concept of value as the current equivalent of all expected net revenues that the valued asset can bring to its owner in the future. Not only the size of income is taken into account under the concept, but also the time horizon required to get this income, as well as the level of risk associated with it.

The use of the income approach allows to determine the value of real estate at the moment, which reflects the quality and quantity of income that the property can bring during its life cycle and risks specific to the real estate market that is undergoing the assessment process.

The choice of capitalization method is determined by and depends the nature of the expected income. It is possible to divide the Income method into 2 more methods of evaluation:

1) direct capitalization of income;

2) discounting cash flows.

And if the process of analysis requires to calculate the stream of future income obtained over several years, then this method is called the method of discounting cash flows.

The discounted cash flow method is referred to a property valuation through the process of summing the present values (PV) of its future cash flows throughout the period and its terminal value (TV), the ultimate sale or liquidation value at the end of that period. It is important to state that the present value of these cash flows is calculated with a discount rate which is taken basing on the real estate factors and market analysis. (Glickman, 2013).

Both in academic and professional practice the framework of investment valuation known as discounted cash flow has gained a wide acceptance. It is more common in the real-world conditions to use 10 years forecast of future cash flows when applying the discounted cash flow model in commercial real estate market (Geltner, Miller & Clayton, 2013).

Any forecast of events in future requires assumptions, which has to be justified, and the result of the right and wise outcome depends on the choice of these assumptions. Overall, there are three major elements in a discounted cash flow model. The first one is the annual cash flows during the investment period.

It can be fairly stated that the estimated property performance in future time periods of the investment term is reflected through the cash flows used in the calculation. The DCF model underlies the use of the annual cash flow that is expected to be generated in future instead of estimating a stabilized annual cash flow. There are different factors which can influence the value of future cash flows and cause diversity in the performance. These events can be reflected in lease expirations, tenant replacement, forecasting expenses, capital expenditures, renovations and expansions. The second element of DCF is the terminal value, which is determined as the residual value of the property at the end of the investment term. An accurate calculation of the terminal value may occur as a challenging activity, as it involves assumptions as well, like setting the cap rate which combines one's knowledge about the real estate market and the competitive position of the property at the moment of investment. The third element is the discount rate. As it was stated before, a currency unit in future worth less than a currency unit in the pocket today. (Glickman, 2013). Respectively, «the discount rate serves to convert future currency unit into its present value equivalent». This procedure cannot be embodied without accounting the risk in the expected future cash flows (Geltner, Miller & Clayton, 2013).

Net present value rule is a simple investment decision rule which can be applied to the method of discounted cash flow. According to Geltner, Miller and Clayton (2013), the rule can be described in two components:

1) maximize the net present value across all mutually exclusive alternatives;

2) the alternative with the net present value less than zero (NPV < 0) cannot be chosen.

Here it is also important to understand that deals with NPV=0 are not zero-profit deals. The desire to deals only with projects that show large positive NPV may be not very realistic, because real estate market is driven by a high level of competition.

One more widely used method of property valuation is the comparable method. It is based on comparing similar facilities by prices, i.e. comparing to key rivals to recognize an opportunity. Then is necessary to adjust those prices, given the differences in size, location, condition, etc. It is also possible to look at margins levels and compare them as well. (Pagourtzi, Assimakopoulos & Hatzichristos et al., 2003).

In the perfect circumstance, the value of the real estate can be established by comparing it to a sample of recently traded properties of the maximum similar type, condition, and location. The comparative, or market, method assumes that properties with similar characteristics can be compared on the market at an equivalent price. The abovementioned method is usually applied for real estate items that are often sold and bought, real estate facilities that do not generate profit.

The sequence of activities involved in the process of real estate valuation by comparative sales method is as follows:

1) identification of real estate similar objects that are most comparable with the ones sold relatively recently, based on the analysis of the location and trends of the real estate market of the segment to which this property belongs;

2) collection of information for each property for the further analysis;

3) conducting price adjustments for each comparable facility taking into account the differences between them and the property being evaluated.

Thus, the value of a real estate property is determined by the weighted average cost of a similar property, taking into account amendments for its difference from the estimated property. (Glickman, 2013)

Another popular method of real estate valuation is the Cost method. It is usually applied when it is not possible to effectively determine the value of an asset and its contribution to the overall business performance through comparison to others, or when the rental is not produced. In this case the basis of the method is to answer the following question: what is the cost of replacing a property, basing on the market value? (Pagourtzi, Assimakopoulos & Hatzichristos et al., 2003).

According to Glickman (2013), this approach is based on construction cost data provided by industry sources. The cost approach involves the assessment of the real estate, consisting of a land plot with the improvements created on it, based on the calculation of the costs which are required for recreation at the specific moment. The use of the cost method is most reliable when evaluating new facilities and is usually applied in several cases: for instance, when analyzing new construction, determining land use options, identifying excess profits in the valuation of real estate, or for taxation. The cost approach requires such information as the amount of overhead, equipment costs, wage level, market prices for building materials, etc.

2.6 Risk assessment

Development of commercial property is inherently a risky business. Real estate markets can be volatile, and this alone is sufficient to make returns risky. All real estate investors expect to receive a good, or at least a fair, return on investments. However, since any kind of investment contains an element of risk, it is possible that investors might not receive the returns they expect. Ideally an investor would want to quantify or estimate the amount of risk attached to an investment before committing to the investment. Thus, commercial real estate investors are in need to be familiar the approaches to risk assessment. In term of real estate business or investment, risk covers the uncertainties related to the expected rate of return from an investment (Reilly and Brown, 2002). In particular, Prospect Theory asserts that for many investors loss aversion is more suitable to characterize their attitude to risk than risk aversion per se (Lausberg, Lee, Mьller et al., 2019). In the article Risk assessment in commercial real estate development: An application of analytic network process, Malka Thilini and Nishani Champika Wickramaarachchi (2019) analyzed the commercial property development risk factors and, based on the analytical network process (ANP) model, defined the key risk factors to identify which one is highly affected to the commercial development process.

In the first part of the study authors defined the key elements of the risk management process and composed the list of the main risk. Also, the risk assessment criteria were described. Using the analytic network process (ANP) - approach to risk assessment in commercial real estate development, authors revealed the less risky project and identified the list of sub-risk factors in addition to five major ones. Among the five major risk factors there are environmental (e.g. the risk of natural disasters, climate change), social (e.g. workforce availability, cultural compatibility, etc.), economic (e.g. interest rate, property type, market liquidity, demand and supply, etc.), technological (e.g. site conditions, constructability, duration, etc.) and political risk (e.g. council approval, commercial tax policy, political group/activist). According to the article it also was posited that the least affected risk factors are currency conversion factor, lifecycle value, confidence to the market, and investment return.

The researchers discuss an important part of commercial real estate topic since it is necessary to the owners take into account possible risk and explore its influence for the successful existence and prosperity of business. The paper might be useful for readers that would like to consider ANP model structure and application, and, how to select the less risky project. However, the authors give only the general descriptions of ANP evaluation steps; therefore, it is difficult to repeat this approach for specific example.

One more article, devoted to the risk in real estate industry, written by Thomas Wolfgang Wiegelmann. The author believes that factors such as unknown future demand, risks and uncertainty are key elements of real estate development. That is why, the research which is called “Risk Management in the Real Estate Development Industry” explores how risks affect the development of real estate projects and why real estate development is considered to be one of the riskiest corporate activities (Byrne, 1996; Barkham, 1997). The motivation for writing this work was also the fact that in spite of the high risk factors, the real estate development industry lags behind other industries in its sophistication and application of risk identification, evaluation, mitigation and control (Gimpelevich, 2011).

In the first part of the study the authors described the most prominent characteristics of real estate:

1) it is tied to its location;

2) real estate development is considered as complex and multidisciplinary challenge. The development process requests a lot of time and, therefore, developers are limited in flexibility to respond quickly to any fluctuations.

3) it has a long life cycle and useful life.

The next section of the research demonstrates the various stages of the development process and notes that risk is present at all phases. Types and extent of risks may change throughout the project, but the highest level of uncertainty appears in the early stages. Since the impact of decision-making at preparatory stages is already significant, it is necessary to identify the potential risk and to consider in advance possible ways to minimize them.

The third part is devoted to the risk management process. In its practical implementation, a risk management system requires a clearly defined risk policy, a uniform risk terminology, a uniform risk management process, standardized tools and an appropriate risk management organization (Wiegelmann, 2012). The following phases are defined: identification, assessment, control, monitoring.

After theoretical part there is an explanation of content and objectives of empirical research that was conducted. It aims to answer the following research question: What are the practices among leading European real estate development organizations concerning risk management? 158 organizations that are specialized in real estate development were selected. For data collection the researcher used the questionnaire that was addressed to the CEO, CFO or managing partner of the organizations. When analyzing data the purpose of evaluation is to find the correlation between responses and characteristics of the responding organization. The results show specific aspects of the risk management approach of leading European real estate development organizations. The main contribution of this work is to provide theoretical foundation for identifying, assessing and analyzing risks in the real estate development industry (Wiegelmann, 2012). Also, it is notable, that this study identify the strengths and weaknesses in implementation of risk management. A lack of understanding, implementation of risk management and risk awareness exposes a development organization to unnecessary threats and disruptive processes, thereby restricting the organization's scope for realizing opportunities on the one hand and in circumventing threats on the other hand. (Wiegelmann, 2012). The critical success factors for the long-term prosperity of organizations are the recognition of risks and opportunities and the ability to manage these skillfully.

To summarize the information concerning risk in real estate industry it is possible to make some conclusions. Firstly, this segment is one of the most risky for investing in it, but the prediction of possible risk at the early stages may lead to beneficial outcome. Secondly, there are several risk assessment methods, that are applicable to each specific organization, but the basis of the evaluation is the same for all. Finally, different risk and threats occur throughout the entire existence of the property and it is necessary to have enough flexibility to respond quicker.

In general, the literature review covers the scope of topics necessary to familiarize with the commercial real estate market, in particular its functioning in Russian Federation. In this regard, special attention should be paid to the peculiarities of legislation on the market, since each decision should be closely connected with a thorough study of the legal side of the issue. Important aspects of the topic, such as the general definition and classification of real estate, were considered. An important part is a description of the risks that may be associated with investment activities in the commercial real estate market, the assessment of these rice. Also, various methods of real estate valuation were explained with an explanation of their main principles.

3. Methodology

3.1 Overview

According to the stated purpose of this study, it is possible to distinguish two types of approaching the material: exploratory and explanatory. In the frame of research, the dominant one is exploratory. Here are some arguments which support this choice. In the introductory part is explained why this research may be considered appropriate and relevant. Foremost, the study fills the gap, which implies the lack of the studies related to the problem of increasing the capitalized value of different types of commercial real estate. Current research allows to have a better understanding of the existing real estate challenge. What is more, the current paper may serve the new direction for future research. Since this study does not cover all types and categories of the real estate, there are a lot of ways to expand the research field and investigate other issues. Finally, the mission is to develop a new technique, namely, to create an assessing criteria system which demonstrates the opportunities to increase the property value. At the same time, the current research also refers to an explanatory type, as it considers the general idea and then moves to specific example. It is expected to help to understand the current situation in the real estate market, and to give an idea to the real estate owner to recognize business opportunities. This paper focuses on a detailed analysis of the commercial property. Determining the factors increasing the capitalized value of a business allows the owner or the investor to greatly rise the chances in deciding on the best way to deal with accomplishing a goal of a business operating. Thus, the purpose of this study relates to the explanatory type, too.

Each property is an individual project that has certain features that distinguish this facility from another. The field of the current research is well demonstrated by examples, so it is decided to use one specific and unique case for the study. Particularly, to choose one facility from different types of commercial real estate. Such decision is made, because by nature it is characterized as a highly heterogenous asset within subcategories and it is more significantly to conduct thorough exploration not distracted by other types of commercial real estate. Hence, it is reasonable to start with one type of commercial real estate in the frames of the current study. While other examples of commercial facilities might become a direction for future research.

The case is chosen in such way: with the random city generator (available at https://randstuff.ru/city/), where the filter by country (Russia) is set. Subsequently, the Ryazan city is chosen. In the context of this certain city, it is also decided to turn to the office sector of commercial real estate. This sector (offices) is chosen also, because, as it is stated in the background of the study, this one is on the second place in the top 3 types for investments in commercial real estate by popularity in 2019 in Russia. Respectively, for this case the population is any commercial real estate located in the city, while the business centers make up the sampling frame.

There are several main data sources, which will be applied to the study. First of all, the key sources that will be analyzed and used are financial statements, reports and characteristics of property. This information illustrates the current situation of property life, allows to reveal weaknesses and find ways to improve the business center. Moreover, there will be conducted marketing research of selected commercial real estate facility in order to collect data for further forecasting and decision making, and to understand the market supply and demand. Also, the theoretical base for explanation of the data analysis process and of the results. In addition, collection of statistical information and materials of consulting organizations might be considered as one more source. The abovementioned sources of information can be viewed as a secondary data.

Since the study is based on forecasting the future profits of a business and the type of data is a secondary one, the method research is quantitative. The current research includes a quantifiable measurement process and all conclusions will be made based on numbers. Criteria system will be drawn up guided by numerical indicators for a particular criterion of the profitability of commercial property.

During research fundamental analysis is carried out, and for this particular case the most useful levels are mesoeconomic (the analysis of real estate market indicators of a specific region) and microeconomic (the analysis of the particular commercial property). It allows to reveal opportunities of considered business and to suggest various variants for increasing profit, and, also to define basic criteria on which the value of the property depends. This analysis is done to help with investment decisions. Overall, fundamental analysis is a method for evaluating an asset value and factors which influence its price.

In addition, at the last stage of the study comparative analysis is carried out. It involves a comparison of indicators from two sides. Firstly, it compares the profit from the operating activities of the business center that works in the current format and in the case when the business center is upgraded and improvements are added. Secondly, in order to create a criteria system, it is necessary to identify improvements that are the most beneficial for a particular business center and to make a rating. Thus, there is a comparison of suggested enhancements. For clarity, the results comparison is presented in the table.

The method that underlies the study and estimate considered case is called Income Approach, which is based on the business valuation from the perspective of the ability to generate profit by the property. In other words, the function of economic benefit determines the value. The Income Approach method allows to achieve the set goal of the research. The method on which further research is based involves the prediction of cash flows from a given business. It implies calculation of business value based on forecasting, with the expectations playing a special role in the formation of a company value. These expectations are associated with the future value creation; and the available retrospective information is used as the source of the data for the forecast. Some financial analysis is performed during the preparation of the source data using the income approach. It can be used to evaluate the characteristics of the development of the enterprise, including rates of growth, cost, profitability, discount rate, etc. As a result, the constructed forecast will serve as a tool for further decision making regarding the generation of maximum profit for the investor. Evaluation by the income approach assumes that potential buyers consider the income-generating facility of the valuation from the point of view of investment attractiveness, that is, as an investment facility with the aim of obtaining appropriate income in the future. This approach includes two different methods of converting revenue streams: direct capitalization method and discounted cash flow method. When analyzing the chosen business center, it is decided to use the second type, because of several reasons. Firstly, selected property recently put into operation. Secondly, it is anticipated that future cash flows will differ materially from current ones. Generally, the discounted cash flow method is the most universal method for determining the present value of future cash flows.

In order not to miss any step in the data collection and data analysis, the following algorithm of actions is organized:

1) use the random city generator to determine region, where a commercial property will be chosen;

2) choose the type of commercial real estate;

3) find the most appropriate example of the specific type of commercial property;

4) collect data containing information about the facility characteristics, its cost price, financial indicators, its operating activity etc.;

5) conduct the analysis of the gathered data;

6) determine possible opportunities to increase profit;

7) identify variants to cut costs;

8) consider the factors that improve the facility;

9) represent how financial indicators and capitalized value will change when applying potential enhancement;

10) conduct comparative analysis that shows which of the proposed improvements will become more beneficial for business center.

3.2 Facility description

Current research represents the detailed analysis of the particular case and propose possible ways to make the considered facility more beneficial. As mentioned above as the example of commercial property acts the business center in Ryazan city. This business center is intended for rental of premises intended for offices. Сonstruction began with the purchase of land for the building and project development in 2013 and it was commissioned at the end of 2017. The business center is a four-story building with a basement. The area of ??each floor is 550 square meters. A separate entrance group (central entrance) is organized for the first floor, which allows the tenant not to depend on everyone else. Located in the center of Ryazan, it is in close proximity to municipal institutions, banks and hotels. Walking distance to public transport, convenient transport links and access to train stations. The modern equipment of the building provides respectability for business and comfort for guests and tenants. The technical equipment of the building includes: 24 hour security; autonomous heating system; CCTV, management and access control system; modern fire alarm and fire extinguishing system; passenger elevator OTIS; fiber optic telecommunications; supply and exhaust ventilation system, individual air conditioning system. The modern equipment of the building provides respectability for business and comfort for guests and tenants. The staff of the organization serving as the landlord are 5 people: Director, Chief Accountant, Deputy Director for Economic Affairs and 2 cleaners. In addition, there are employees that are hired if it is necessary. This category of workers includes a lawyer, electricians and IT specialists.

3.3 Data collection

One of the first steps in collecting data is to explore the offers of commercial real estate market. Using the real estate base www.cian.ru it managed to get some observations. Ryazan city is chosen as a region and office rental as a category. 61 business centers are found offering rental premises. Rental rates on average ranged from 500-900 per square meter. Mainly the buildings are built in 1990-2010, and only 12 properties were built over the past 10 years. Main advantages of the business center selected for research are: location, quality of services provided, individual approach to each client, flexible payment system, assistance when moving from another office (providing a gazelle within the city and movers), redevelopment taking into account the requirements of each tenant (subject to a preliminary contract). Especially here stands out the opportunity for a potential tenant to create an office according to his wishes, the landlord is ready to redevelop the premises. Unlike other business centers, where the rental premises are fixed and not ready for changes.

Studying the operating activities of the business center, it is possible to conclude that the main income is the proceeds from the rental of premises for offices, from the rental of parking spaces, from the provision of telecommunication services. The rental fee includes the following: area fee, cleaning and maintenance of public areas, building security, video surveillance, layout of the premises according to the technical specifications of the tenant.

Table 1 shows rental revenue from office spaces and from paid parking from 2017 to 2019. In 2019 total rental revenue increased almost three times compared to 2017. This is due to the fact that the number of tenants has doubled, in addition, the occupancy of the parking has changed: from 25% to 70%.

Table 1 Rental revenue from office spaces and from paid parking

The landlord provided engineering networks not only to the building, but also distributed telecommunications to each of the tenants. In addition, all the necessary equipment to ensure a stable signal is installed. Thus, the provider is completely spared from the costs that are incurred when connecting each of the clients. The provider enters into an agreement directly with each of the tenants. The landlord receives 20% of the proceeds from each contract concluded for the provision of telecommunication services. The costs associated with the networks providing were in 2016 and 2017 and amounted to 150,000 rubles. Revenue in 2018 was 68 000 rubles, in 2019 - 95 000 rubles. For a visual presentation of the data, a table is compiled showing the summary budget for the facility. Table 2 depicts consolidated budget from 2014 to 2019. Land purchase was in 2014 and predesign/design works proceeded. Then, from 2015 to 2017 construction works lasted. In addition to the mentioned costs, the fixed expenses include land tax and repair fund. The cost price of the business center consists of office space costs, telecommunications, advertising costs, communal payments, depreciation and other costs. Depreciation is charged from 2018, as the building was commissioned at the end of 2017. Up to this point there have been investments in construction. To calculate depreciation, the linear method is used. Next are the costs associated with staff (salaries and taxes). Profit and income tax are also highlighted in separate lines.

Table 2 Consolidated budget

The value of the facility is 78 351 000 rubles. Of this amount, 5 957 000 rubles is equity and 72 394 000 rubles is borrowed capital. It consists of funds invested by participants. Starting from March 2018, the Company each quarter repays a loan to participants (2 persons) in the amount of 600 000 rubles (300 000 rubles to each).

3.4 Data analysis

The method that is used in order to calculate the capitalized value of a business after increasing the generated profit is the income approach, as it is mentioned earlier in the literature review section. That is, the approach to assessing the value of a business is based on bringing the income to a single value.

This abovementioned method has several following advantages. First of all, it allows to compare the investment attractiveness of a business or investment project on the basis of income. Secondly, it is used for companies that already have enough financial data to accurately predict future incomes and growth rates. It is also worth noting that at the time of the study, the business center had already reached the breakeven point, which also allows to use the method of income capitalization, since it is not suitable for evaluating a business with losses.

If the money are invested today and all the cash flows generated by this investment are brought to a finite period, then it can be viewed as the future, or capitalized, value, and the very method by which the future value of the currently invested amounts is estimated is called capitalization method. In turn, the cash flow model is never built for an infinitely long period of time. A certain forecasting horizon is chosen, for example, 10 years, and the business value is calculated as the sum of the discounted cash flows for a given period added to the present value of the residual value (terminal value) of the business at the end of the selected period. The residual value, in turn, is calculated through the multiplier.

The first step is to evaluate an existing business. More precisely, the work of a business center. To start with, there is a need to take into account the discount rate and the capitalization rate. Discount rate is the interest rate used to calculate the current value of the amount of money received or paid in the future. In a mathematical sense, the capitalization ratio is the rate which is used to bring the revenue stream to a single amount of value. At the same time, from an economic point of view, the capitalization ratio reflects the rate of return for the investor.

The information presented above contains information on revenue and net profit generated by operating a business center. In order to assess the situation, the performance indicators of a business center should be compared with market indicators. That is, with the average capitalization rate for Russia. The capitalization rate here estimates the current rate of return (profitability) of the company's capital without taking into account the company's growth rate. The capitalization rate is calculated using the following formula (1).

where:

V- Value of the business

I- Income

R - rate of capitalization.

The value of the business is 78 351 000 rubles. Net income for 2019 is 7 851 052. According to the Colliers (2018) annual review, the average capitalization rate in the office real estate market varies from 9 to 10% depending on the class of the property. The A class properties most often have the capitalization rate of 9%, while the cap rate of the buildings of lower classes fluctuate to 10%. Hence, the expected capitalization rate for the case is determined as 10%.

The second step is to calculate the discount rate, which estimates and shows the future rate of return (profitability) of the company's capital. In order to complete this step, it is necessary to resort to the estimation of the weighted average cost of capital (WACC). There exist several variations in the calculation of WACC. The basic formula (2) is presented below.

where:

Re = cost of equity;

Rd = cost of debt;

E = market value of the firm's equity;

D = market value of the firm's debt;

V = E + D;

T = corporate tax rate.

For the correct calculation of return on equity in the WACC model using the capital asset valuation model (CAPM or Sharpe model), it is necessary to issue shares in the stock market. However, in the case of a business center, a simplified formula for calculating WACC should be applied, which is explained by the following reason. In one of the stages of calculating the weighted average cost of capital, it is necessary to calculate the forecasted return on equity (Re), which, as a rule, is calculated using the CAPM model. However, for the correct application of that model, the presence of ordinary shares traded on the market is necessary. Since the business center does not have public issue of shares, it is impossible to assess the return on capital in a market-based manner. Therefore, return on equity can be estimated on the basis of financial statements - ROE ratio (return on equity). This indicator reflects what rate of return creates a company's equity. As a result, Re = ROE. Thus, the modified formula (3) which is applied for the calculation is as follows:

where:

ROE = return on equity;

Rd = cost of debt;

E = market value of the firm's equity;

D = market value of the firm's debt;

V = E + D;

T = corporate tax rate.

In order to calculate ROE value, the income after taxes is divided by the value of the firm's equity (I/E). Therefore, ROE equals to 1,08. Further, using the data of the company and making calculations, according to the formula, the result at which the WACC equals to 18,8 % is reached. Further, basing on the fact that the WACC model is used in investment analysis as a discount rate in the calculation of investment project performance indicators, it is assumed that the discount rate equals to 18,8%.

Using the method of discounting cash flows, the forecast period is 10 years, created on the basis of financial statements on income and expenses from the property in the retrospective period. In the current case, the net operating cash flow will be calculated. The estimation features of net operating cash flows include that the property tax, consisting of land tax and property tax, must be deducted from the actual gross income as part of operating expenses; capital investments must be deducted from the net operating income for receiving the cash flow, since these are real cash payments that increase the life of the facility, loan servicing payments (like interest and debt repayment, but in the case of a business center this is a loan for the payment of which a certain amount is set for each participant) are needed to be deducted from net operating income, if the investment value of the object is estimated (for a specific investor). When assessing the market value of a property, it is not necessary to deduct loan servicing payments; the entrepreneurial expenses of the property owner must be deducted from the actual gross income, if they are aimed at maintaining the necessary characteristics of the property.

After analyzing the current conditions of business center and taking into consideration external factors that might affect its performance, a number of various variants for increasing capitalized value are made. These suggestions are aimed at improving and development of given business center. There are several types of innovations in commercial real estate that can bring a business center to a new level of work: changes in the structure of an object. Such changes may include redevelopment, modernization. It is the change in the structure of the object that the upsites have to do with, which take into account additional opportunities in real estate that can be used to generate more profit. The second type of change can be characterized by a block of new business processes and services. Opportunities that, for example, can affect the rental rate, can be considered here, since it includes the provision of any additional services. The third type of innovation is technological improvement, which can affect the reduction of costs incurred by a commercial real estate object.

Object development can go in two directions: hard skills (technical skills, working with equipment, process management) and soft skills (communication skills, working with people, relationship management).

Speaking about the topic of process improvement in the field of commercial real estate, it is worth mentioning the concept of agile working space. The basis of this concept is a flexible approach to the organization of the workspace, which involves the presence of multifunctional zones for teamwork and creative activities, negotiations, etc (Keeling, Clements-Croome & Roesch, 2015). In the current environment, it is necessary to focus on modern trends and multifunctionality.

All of the enhancements presented further are justified by the analysis and calculations. First of all, it is worth paying attention to the ground floor of the building. According to the plan, percentage of the area that is given for public space is unjustifiably high and amounts to almost 50% of the entire floor area. Thereby, it is invented to allocate a part of the space under the cafй. Implied that this cafй will function for employees and tenants. Since time for lunch at work is usually limited, there will be set meal offered in the cafй. Moreover, the cafe will be open from early morning, so quick breakfasts will be organized for those who did not have time to have breakfast at home. Also, the employees of the business center will have the opportunity to buy and take away a snack or a sandwich and a cup of coffee or tea.

The next supplementation is installation of vending machines on the first and on the third floors. Vending machines continue to be popular and renting a place for these devices brings essential profit. Vending does not lose relevance, because installation, maintenance of a vending machine is a relatively simple business that does not require huge investments. At the end of 2018, the European Vending & Coffee Service Association (European Vending Association) published a report according to which Russia ranks 7th in the world in the number of vendors: there are about 165 thousand of them in our country. The association estimates the global growth rate of the vending market at 2.5-3% per year. At the same time, the Russian market in 2018 increased by 9.7%. The first and third floors are chosen because the traffic here is higher: on the first floor it is obvious for what reason, on the third floor there are tenants who consistently have visitors.

The third idea is following: the provision of cleaning services. At the moment, there is the cleaning of public areas in the business center and maintaining the general conditions of the building. As practice shows, tenants expect the management company of the office center to provide daily cleaning services. However, not every business center includes this service in the rental rate and for tenants it comes as a surprise when signing an agreement, which increases the budget of monthly expenses by a certain amount. Office cleaning services will be included in the contract with the tenant. Daily cleaning of offices will include: dry and wet cleaning of horizontal surfaces, as well as desktop lighting and office equipment; removal of dirt from office furniture; taking out the trash; mopping; dust removal from doors, mirrors, interior items, heating appliances and window sills. The rental price also will includes general cleaning of offices, which is carried out once a month as agreed with the tenant. Survey of tenants regarding the addition of such service shows that cleaning system organization for offices will be in demand.

Furthermore, another profit boost opportunity is advertising. Business center is a good platform for installation of advertising stands. It might be advertising on monitors, advertising on lightboxes, advertising on plasma boxes, branding of elevators and advertising on racks. Advantages of advertising in business centers: wide coverage of the target audience, the lack of a large number of competitors' advertising structures, the ability to install advertising media in the most passable places, the high frequency and duration of contacts, an individual approach to the advertising structure.

The most significant improvement is fifth floor superstructure. Certainly, this conversion requires impressive investment and assessment of how feasible it is from the technical side of the issue. A superstructure of the additional floor must be accompanied by a permit for the reconstruction of the building. The procedure for issuing permits is regulated by article 51 of the Town Planning Code of the Russian Federation. An application for a building permit is issued electronically through a portal of state or municipal services. In accordance with the design documentation of the facility, an additional floor superstructure is possible. The upper floor involves the organization of space as follows:

1) recreation area for all employees of the business center;

2) a part of the area is reserved for the coffee stall;

3) approximately 30% of the floor will be given to offices, the rental rate here will be higher due to the level of improvement of the upper floor;

4) the main part of the area on the fifth floor is allocated for the organization of space for coworking.

Coworking is an approach of labor organization in which employees of different companies and varied fields of activity share an office space. This service implies working independently or collaboratively and characterized as flexible organization of the workspace. The development of such space is one more way to generate additional income. Coworking is a popular form of work organization. According to “Avito. Real Estate” service analysts, the high demand from tenants and the lack of strict regulation in the market make coworking an attractive business. This is evidenced by a number of reasons. Firstly, per capita consumption of coworking center services has been increasing by about 20-30% annually since 2016. Secondly, according to DeskMag, “any two-year-old coworking is a plus”. Moreover, after reading an interview with 6 founders of coworking centers in different cities of Russia, it is possible to note some key facts:

1) mini offices are more demanded than open space;

2) payback period to be guided by - about two and a half years;

3) the organization of space is focused on the needs and desires of residents;

4) an important step is to determine the target audience;

5) prerequisite is formation of general rules for visiting.

Finally, after analyzing the coworking market in Ryazan city, it became clear that this service will be in demand, because at the current moment demand exceeds supply.

In addition, a cost reduction option is considered. Making an estimate of the electricity cost, it is possible to conclude that there is a way to reduce payment costs. Installation of motion sensors and presence sensors will allow to achieve this goal. It is one of the most effective ways to solve the problem of energy saving. The principle of their work is simple: the sensors automatically turn on / off the lighting in the room depending on the intensity of the natural light stream and / or the presence of people. The number of fixtures or the load will not decrease, only the duration of the lighting will be reduced, which in turn also extends the life of the lighting fixtures, this is important for the growing indicator of the use of LED lighting. One of the advantages is an easy installation and setup for further work.

To sum it up, based on established research question and purpose of this research the corresponding methodology of data collection and following analysis is designed. Described design of the study allows to consider business opportunities on a specific example.