Property methods and examples
Commercial & Alternative Real Estate Guides
Understand the question behind the calculation. Explore definitions, practical examples and the assumptions that change the result.
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How to Calculate Commercial Rent per Square Foot
For an annual per-square-foot rent quote, multiply rentable area by the annual rate. Add separately modeled pass-through rates on the same area basis, then divide the annual total by 12 for a monthly planning average.
Read guide Commercial & Alternative Real EstateNNN Lease Costs: Base Rent, Taxes, Insurance and CAM
An NNN cost scenario combines base rent with entered tax, insurance and maintenance/CAM charges. The label alone does not tell you every cost, exclusion or reconciliation rule in an actual lease.
Read guide Commercial & Alternative Real EstateHow to Analyze a Commercial Real Estate Investment
A commercial investment review separates property NOI and cap rate from after-debt cash flow and cash-on-cash. Begin with a supported operating statement and explicit price, payment and equity assumptions, then test how lease and cost changes affect those relationships.
Read guide Commercial & Alternative Real EstateLease vs Buy Commercial Property: A DCF Framework
A lease-versus-buy DCF comparison discounts each scenario’s future cash costs to the same date and rate. The buy case includes initial cash and ongoing costs, then subtracts discounted net exit proceeds. The difference depends on the modeled timing, scope and residual value.
Read guide Commercial & Alternative Real EstateGround Lease Valuation: Yield and Present Value
Initial ground-rent yield divides annual rent by land value. Present value of ground rent discounts the specified future rent stream. These answer different questions, and neither automatically includes land reversion or every right in the lease.
Read guide Commercial & Alternative Real EstateDebt Yield vs DSCR vs LTV
Debt yield is NOI divided by loan amount. DSCR is NOI divided by debt service. LTV is loan amount divided by property value. Each ratio uses a different denominator and highlights a different financing relationship; none alone establishes lending eligibility.
Read guide Commercial & Alternative Real EstateSelf-Storage Investment Metrics That Matter
A self-storage investment scenario follows occupied unit revenue and ancillary income into NOI, then compares property-level yield and after-debt cash return. Unit count, occupancy and average rent simplify a facility with potentially different unit sizes and collection patterns.
Read guide Commercial & Alternative Real EstateNOI in Commercial Real Estate: What Counts as an Expense?
Commercial NOI is effective operating income less the recurring property operating costs on a defined basis. Tenant recoveries and landlord-paid costs need consistent treatment. Debt service and investor income tax remain outside the operating subtotal.
Read guide Commercial & Alternative Real EstateCommercial Real Estate Basics: Property Types, Income and Core Metrics
Commercial real estate includes income-producing property such as office, retail, industrial, multifamily and specialized assets. Underwriting usually starts with income, operating expenses, NOI, lease structure, financing and valuation metrics rather than relying on one headline return.
Read guide Commercial & Alternative Real EstateGross Lease vs Modified Gross vs Triple Net Lease
A gross lease places more operating-cost responsibility on the landlord, a triple-net lease generally passes specified taxes, insurance and maintenance or operating costs to the tenant, and a modified-gross lease falls between those structures. The actual lease language controls the economics.
Read guide Commercial & Alternative Real EstateCAM Charges: What They Are and How to Model Them
CAM charges are common-area maintenance expenses allocated to tenants under many commercial leases. The lease determines which costs are recoverable, how they are allocated, whether caps or exclusions apply and how annual estimates are reconciled with actual expenses.
Read guide Commercial & Alternative Real EstateUsable vs Rentable Square Feet and Load Factor
Usable square feet measure the space a tenant can generally occupy for its exclusive use, while rentable square feet can include an allocated share of common areas. The load factor expresses the relationship between rentable and usable area and affects quoted rent comparisons.
Read guide Commercial & Alternative Real EstateTenant Improvement Allowance and Free Rent: Effect on Effective Rent
Tenant improvement allowances and free-rent periods are lease concessions that reduce a tenant’s effective occupancy cost or help fund build-out. They should be modeled across the lease term rather than ignored because they do not always appear in the face rental rate.
Read guide Commercial & Alternative Real EstateCommercial Lease Escalations: Fixed, CPI and Market Resets
Commercial lease escalations increase rent over time using a method defined in the lease, such as fixed percentage increases, fixed dollar steps, CPI-based adjustments or market resets. The escalation method affects both tenant occupancy cost and landlord cash flow.
Read guide Commercial & Alternative Real EstateCommercial Loan Amortization, Balloon Payments and Interest-Only Periods
Commercial loans can combine an amortization schedule longer than the contractual loan term, creating a balloon balance at maturity. They can also include interest-only periods before amortization begins. These structures change debt service, refinance risk and the balance remaining at exit.
Read guide Commercial & Alternative Real EstateLoan-to-Cost vs Loan-to-Value in Commercial Real Estate
Loan-to-cost (LTC) compares a loan with total project cost, while loan-to-value (LTV) compares a loan with a property value. In commercial real estate they answer different leverage questions, so the same deal can show materially different LTC and LTV ratios.
Read guide Commercial & Alternative Real EstateLoan Constant: Formula and Use in Commercial Underwriting
Loan constant is annual debt service divided by the original loan amount, usually expressed as a percentage. It summarizes the annual payment burden of a loan structure and can help compare financing scenarios, but it is not the interest rate, debt yield or DSCR.
Read guide Commercial & Alternative Real EstateYield on Cost vs Cap Rate: Development Spread Explained
Yield on cost compares stabilized NOI with total project cost, while cap rate compares NOI with property value or price. The difference between a project’s stabilized yield on cost and an applicable market cap rate is often called a development spread, but that spread is not a guaranteed profit margin.
Read guide Commercial & Alternative Real EstateCommercial Real Estate Due Diligence: Financial, Lease, Property and Loan Documents
Commercial real estate due diligence should connect the financial statements, rent roll, leases, property condition, title and zoning information, environmental materials, insurance, taxes and loan terms into one underwriting review. No single checklist proves a deal is sound; the goal is to verify the assumptions used in the investment model.
Read guide Commercial & Alternative Real EstateLease Rollover Risk: Expiration Schedules, Renewal Probability and Downtime
Lease rollover risk is the possibility that expiring tenants renew at different terms, vacate, require concessions or create downtime and leasing costs. The core tool is an expiration schedule that shows when rent and square footage roll, how concentrated those expirations are, and how much cash flow depends on successful renewals.
Read guide Commercial & Alternative Real EstatePercentage Rent Lease: Base Rent, Breakpoint and Percentage Rent
A percentage-rent commercial lease typically combines a fixed base rent with additional rent calculated as an agreed share of tenant sales above a breakpoint. Natural breakpoints can be derived from base rent divided by the percentage-rent rate, while negotiated breakpoints may differ. The signed lease controls eligible sales and exclusions.
Read guide Commercial & Alternative Real EstateExpense Stop and Base Year in Modified Gross Leases
An expense stop or base-year provision allocates commercial operating expenses between landlord and tenant. An expense stop is a specified threshold above which a tenant reimburses eligible expenses; a base year uses an agreed historical expense level as the comparison point, adjusted according to the lease.
Read guide Commercial & Alternative Real EstateGross-Up Provisions in Commercial Operating Expenses
Gross-up provisions normalize specified variable operating expenses to a hypothetical occupancy level when allocating commercial property costs. They prevent tenants in a partly vacant property from receiving distorted variable-cost allocations, but only eligible expenses and the agreed lease method should be grossed up.
Read guide Commercial & Alternative Real EstateTenant Credit Risk and Lease Value
Tenant credit risk affects commercial lease value because contracted rent is not guaranteed cash. Analysts assess the tenant’s ability to pay, lease security, industry exposure, concentration and remaining term, and may model probability of default and downtime as separate risk drivers.
Read guide Commercial & Alternative Real EstateWeighted Average Lease Term (WALT): Formula and Rollover Risk
Weighted average lease term (WALT) summarizes remaining contractual lease duration across tenants, weighted by a chosen measure such as base rent or leased area. Rent-weighted WALT is the sum of each lease’s remaining years times its rent weight divided by total included rent.
Read guide Commercial & Alternative Real EstateCommercial Lease Renewal Option: Market Rent vs Contract Option
A commercial lease renewal option may give the tenant a contractual right to extend under preset rent, a formula or a market-rent determination process. Its value depends on the difference between option rent and expected market terms, along with notice requirements, conditions and any landlord concessions.
Read guide Commercial & Alternative Real EstateFree Rent vs TI Allowance: Comparing Concession Packages
Free rent and tenant improvement (TI) allowance are different concessions in a commercial lease. Free rent reduces cash collections during the concession period; a TI allowance funds agreed improvements. Compare their economic cost by present value, timing, tenant obligations and the quality of improvements retained by the property.
Read guide Commercial & Alternative Real EstateDSCR in Commercial Real Estate: NOI and Debt Service
Debt service coverage ratio (DSCR) in commercial real estate commonly divides underwritten net operating income by the applicable annual debt service. A ratio above 1.0 indicates modeled income exceeds the included debt payments, but lenders may use differing definitions, stress rates, reserves and underwriting adjustments.
Read guide Commercial & Alternative Real EstateDebt Yield Benchmarks: Why No Single Target Fits Every Deal
Debt yield is underwritten annual NOI divided by outstanding loan principal, expressed as a percentage. It measures income relative to lender exposure without directly using interest rate or amortization. There is no single universally appropriate target because lenders and property risks differ.
Read guide Commercial & Alternative Real EstateCommercial Refinance Risk: Balloon Maturity, DSCR and Value
Commercial refinance risk arises when an existing mortgage matures or requires a balloon payoff and replacement financing may be smaller, more expensive or unavailable. Model future NOI, value, loan-to-value, DSCR, debt yield, rates, fees and the amount of equity required to bridge any refinancing shortfall.
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