MODULE 8 • WEEK 27 • LESSON 106

Commercial Properties

Master professional commercial real estate analysis and unlock institutional-grade investment opportunities

⏱️ 35 min 🏢 Property evaluator 📊 Cap rate analysis ❓ 10 questions
Module 8
Week 27
Lesson 106
Quiz

The $1.2 Million Commercial Analysis Advantage:

Two investors analyze the same 15,000 SF office building listed at $2.8 million. Investor A sees the attractive 7.5% cap rate, decent location, and stable tenants, and makes a quick offer based on gut feeling. Investor B conducts professional commercial analysis: discovers the largest tenant (40% of income) has a lease expiring in 8 months with below-market rents, identifies $180,000 in deferred maintenance, calculates true stabilized cap rate at 6.2%, and projects $220,000 in capital expenditures over 3 years. Investor A pays asking price and faces immediate vacancy, expensive renovations, and negative cash flow for 18 months. Investor B negotiates to $2.35 million, budgets for improvements, secures lease renewals at market rates, and achieves 12% IRR over 5 years. The difference? Professional commercial property analysis that separates institutional investors from amateurs. Today, you master the analysis skills that create $1.2 million advantages.

1. Commercial Property Types and Classifications

Understanding commercial property classifications is essential for proper analysis, valuation, and investment strategy development.

🏢 Office Property Classifications

Class A Office Buildings

📋 Characteristics:
  • Location: Prime central business district or prestigious suburban locations
  • Construction: High-quality materials, modern architecture, excellent finishes
  • Age: Typically newer construction or extensively renovated buildings
  • Amenities: High-speed elevators, advanced HVAC, covered parking, fitness centers
  • Technology: State-of-the-art building management systems, fiber optic infrastructure
  • Accessibility: ADA compliant, excellent public transportation access
💰 Financial Profile:
  • Rental Rates: $25-65+ per SF annually (market dependent)
  • Cap Rates: 4.5% – 7.0% (varies by market)
  • Vacancy Rates: Typically 5-12% (stable markets)
  • Tenant Quality: Fortune 500 companies, major law firms, financial institutions
  • Lease Terms: 5-15 year terms with credit-worthy tenants
  • Operating Expenses: $12-25 per SF annually
🎯 Investment Profile:
  • Risk Level: Low to moderate
  • Liquidity: High (institutional buyer pool)
  • Management: Professional property management required
  • Capital Requirements: $5M+ typical minimum investment
  • Return Expectations: 6-10% total returns

Class B Office Buildings

📋 Characteristics:
  • Location: Good locations, may be secondary business districts
  • Construction: Good quality construction, functional design
  • Age: 10-30 years old, may need some updating
  • Amenities: Standard amenities, adequate parking
  • Technology: Good but not cutting-edge systems
  • Condition: Well-maintained with minor deferred maintenance
💰 Financial Profile:
  • Rental Rates: $18-35 per SF annually
  • Cap Rates: 6.0% – 8.5%
  • Vacancy Rates: 8-15%
  • Tenant Quality: Regional companies, smaller professional firms
  • Lease Terms: 3-7 year terms with good credit tenants
  • Operating Expenses: $8-18 per SF annually
🎯 Investment Profile:
  • Risk Level: Moderate
  • Liquidity: Moderate (regional investor pool)
  • Management: Active management important for value-add
  • Capital Requirements: $1M-10M typical range
  • Return Expectations: 8-12% total returns

Class C Office Buildings

📋 Characteristics:
  • Location: Secondary or tertiary locations
  • Construction: Functional construction, basic finishes
  • Age: 20+ years old, significant updating needed
  • Amenities: Basic amenities, limited parking
  • Technology: Outdated systems requiring upgrades
  • Condition: Deferred maintenance issues common
💰 Financial Profile:
  • Rental Rates: $10-25 per SF annually
  • Cap Rates: 7.5% – 11.0%
  • Vacancy Rates: 15-25%
  • Tenant Quality: Small businesses, start-ups, government agencies
  • Lease Terms: 1-5 year terms with varying credit quality
  • Operating Expenses: $6-15 per SF annually
🎯 Investment Profile:
  • Risk Level: Moderate to high
  • Liquidity: Lower (limited buyer pool)
  • Management: Intensive management required
  • Capital Requirements: $500K-5M typical range
  • Return Expectations: 10-15%+ total returns

🛍️ Retail Property Classifications

Regional Shopping Centers

Size: 400,000 – 1,500,000 SF

Anchors: 2-4 department stores (Macy’s, Nordstrom, etc.)

Trade Area: 15-25 mile radius, 500,000+ population

Typical Rents: $25-60 per SF (inline), $15-25 per SF (anchors)

Investment Size: $50M-500M+

Cap Rates: 5.5% – 7.5%

Community Shopping Centers

Size: 100,000 – 400,000 SF

Anchors: Grocery store, discount retailer, or junior department store

Trade Area: 5-10 mile radius, 100,000-300,000 population

Typical Rents: $18-35 per SF (inline), $12-20 per SF (anchors)

Investment Size: $10M-75M

Cap Rates: 6.0% – 8.5%

Neighborhood Shopping Centers

Size: 30,000 – 100,000 SF

Anchors: Supermarket, drug store, or convenience stores

Trade Area: 1-3 mile radius, 3,000-40,000 population

Typical Rents: $15-30 per SF (inline), $10-18 per SF (anchors)

Investment Size: $2M-20M

Cap Rates: 6.5% – 9.0%

Strip Centers

Size: 5,000 – 30,000 SF

Anchors: Convenience stores, fast food, service businesses

Trade Area: 0.5-2 mile radius, immediate neighborhood

Typical Rents: $12-25 per SF

Investment Size: $500K-8M

Cap Rates: 7.0% – 10.0%

🏭 Industrial Property Classifications

Distribution/Warehouse

Characteristics: Large open spaces, high ceilings (28-40 feet), dock doors

Size Range: 50,000 – 1,000,000+ SF

Typical Rents: $4-12 per SF annually

Key Features: Heavy truck access, rail access, proximity to highways

Tenants: 3PL companies, e-commerce fulfillment, manufacturers

Cap Rates: 5.5% – 8.0%

Manufacturing

Characteristics: Heavy floor loads, specialized utilities, heavy power

Size Range: 25,000 – 500,000+ SF

Typical Rents: $3-10 per SF annually

Key Features: Crane capabilities, specialized HVAC, environmental considerations

Tenants: Manufacturers, food processing, automotive

Cap Rates: 6.0% – 9.0%

Flex/R&D

Characteristics: Mix of office and warehouse space, clean environment

Size Range: 5,000 – 100,000 SF

Typical Rents: $8-20 per SF annually

Key Features: Office finish in front, warehouse in back, technology infrastructure

Tenants: Tech companies, biotech, light manufacturing

Cap Rates: 5.5% – 7.5%

2. Commercial Lease Structures and Financial Analysis

Understanding different lease structures is critical for accurate financial analysis and investment decision-making.

📋 Commercial Lease Types

Triple Net (NNN) Leases

💰 Financial Structure:

Base Rent: Tenant pays base rent per SF

Operating Expenses: Tenant pays property taxes, insurance, and maintenance (CAM)

Utilities: Tenant typically pays directly

Capital Improvements: Usually landlord responsibility, may pass through to tenants

📊 Example Calculation:

Space: 5,000 SF retail space

Base Rent: $20.00 per SF = $100,000/year

Property Taxes: $3.50 per SF = $17,500/year

Insurance: $0.75 per SF = $3,750/year

CAM Charges: $4.25 per SF = $21,250/year

Total Tenant Cost: $28.50 per SF = $142,500/year

Landlord Net Income: $100,000/year

✅ Advantages for Landlord:
  • Predictable net income stream
  • Operating expense inflation passed to tenant
  • Lower management burden
  • Protection against rising expenses
⚠️ Considerations:
  • Requires strong credit tenant
  • Must provide detailed expense reporting
  • Tenant may scrutinize expenses
  • Lower base rents compared to gross leases

Gross Leases

💰 Financial Structure:

All-Inclusive Rent: Tenant pays one amount covering everything

Operating Expenses: Landlord pays property taxes, insurance, maintenance, and utilities

Expense Risk: Landlord bears risk of expense increases

Simplicity: Simple payment structure for tenant

📊 Example Calculation:

Space: 5,000 SF office space

Gross Rent: $30.00 per SF = $150,000/year

Operating Expenses: $8.50 per SF = $42,500/year

Landlord Net Income: $21.50 per SF = $107,500/year

Tenant Total Cost: $30.00 per SF = $150,000/year

✅ Advantages for Landlord:
  • Higher gross rent rates
  • Simple lease administration
  • Attractive to smaller tenants
  • No expense reconciliation required
⚠️ Considerations:
  • Landlord bears expense inflation risk
  • Must accurately project operating costs
  • Lower net yields in high-expense properties
  • Difficult to adjust rents for rising costs

Modified Gross Leases

💰 Financial Structure:

Base Rent: Includes some operating expenses

Expense Stops: Tenant pays expenses above a certain level

Typical Structure: Landlord pays taxes and insurance, tenant pays utilities and maintenance

Escalations: Built-in rent increases for expense inflation

📊 Example Calculation:

Space: 10,000 SF office space

Base Rent: $25.00 per SF = $250,000/year

Expense Stop: $6.00 per SF (landlord pays up to this amount)

Actual Expenses: $7.25 per SF = $72,500/year

Tenant Pays: $1.25 per SF over stop = $12,500/year

Total Tenant Cost: $26.25 per SF = $262,500/year

Landlord Net: $19.75 per SF = $197,500/year

📈 Lease Analysis Metrics

Rent Roll Analysis

Key Components to Analyze:
  • Current Rent vs Market Rent: Identify below/above market leases
  • Lease Expiration Schedule: Rollover risk and re-leasing opportunities
  • Tenant Credit Quality: Financial strength and lease guarantee analysis
  • Escalation Clauses: Annual rent increases and CPI adjustments
  • Renewal Options: Tenant rights and renewal probability

Expense Analysis

Operating Expense Categories:
  • Property Taxes: Current assessments and appeal opportunities
  • Insurance: Property, liability, and environmental coverage
  • Utilities: Electricity, gas, water, waste management
  • Maintenance & Repairs: HVAC, elevator, landscaping, cleaning
  • Management Fees: Property management and leasing costs
  • Capital Reserves: Roof, HVAC, parking lot replacement

3. Professional Commercial Property Evaluator

Analyze commercial properties using institutional-grade financial metrics and underwriting standards:

🏢 Complete Commercial Property Analysis Tool

⚠️ Professional Use Notice:

This tool uses institutional underwriting standards. Results are for educational purposes. Always verify with professional appraisers and conduct proper due diligence for actual investments.

Property Information:

Current Financial Performance:

Rental Income:
Annual gross rents from all tenants
Parking, storage, fees, etc.
Current physical vacancy
Operating Expenses:
Purchase Information:

Financing Structure:

Market Analysis:

Current market rental rate
Submarket vacancy rate
Comparable sales cap rates

Save Your Analysis:

4. Professional Valuation and Underwriting

Master institutional-grade commercial property valuation methods used by professional investors and lenders.

📊 The Three Approaches to Value

Income Capitalization Approach

Direct Capitalization Method:

Value = Net Operating Income ÷ Capitalization Rate

Example: $850,000 NOI ÷ 6.5% Cap Rate = $13,077,000 Value

📋 Step-by-Step Process:
  1. Reconstruct Operating Statement: Analyze 3 years of actual performance
  2. Normalize Income: Adjust to market rents and stabilized occupancy
  3. Stabilize Expenses: Remove one-time items, normalize recurring costs
  4. Calculate NOI: Effective Gross Income – Operating Expenses
  5. Select Cap Rate: Based on comparable sales and risk assessment
  6. Apply Formula: Divide NOI by cap rate for indicated value
🔍 Cap Rate Selection Factors:
  • Location Quality: Prime vs secondary vs tertiary locations
  • Property Quality: Class A = lower cap rates, Class C = higher cap rates
  • Tenant Quality: Credit-rated tenants command lower cap rates
  • Lease Terms: Longer-term leases reduce risk, lower cap rates
  • Market Conditions: Supply/demand dynamics affect cap rates
  • Interest Rates: Rising rates generally increase cap rates

Sales Comparison Approach

Comparable Sales Analysis:

Value = Price per SF × Subject Property SF

Example: $285 per SF × 47,500 SF = $13,537,500 Value

📋 Adjustment Process:
  1. Identify Comparables: Recent sales (6-12 months) of similar properties
  2. Verify Sale Details: Confirm price, terms, motivations, conditions
  3. Analyze Differences: Location, size, age, condition, tenancy
  4. Make Adjustments: Quantify impact of differences on value
  5. Reconcile Range: Weight most similar comparables heavily
🔧 Common Adjustments:
Location Adjustments:
  • Prime location: +10% to +25%
  • Secondary location: -5% to -15%
  • Traffic counts and visibility
  • Demographics and income levels
Physical Adjustments:
  • Newer construction: +5% to +15%
  • Deferred maintenance: -10% to -25%
  • Superior finishes: +5% to +10%
  • Functional obsolescence: -15% to -30%
Economic Adjustments:
  • Above market rents: +5% to +15%
  • Below market rents: -10% to -20%
  • Lease rollover risk: -5% to -15%
  • Strong tenant credit: +5% to +10%

Cost Approach

Replacement Cost Method:

Value = Land Value + (Replacement Cost – Depreciation)

Example: $2,500,000 + ($15,000,000 – $3,000,000) = $14,500,000

📋 Cost Approach Steps:
  1. Estimate Land Value: Comparable land sales analysis
  2. Calculate Replacement Cost: Current construction costs per SF
  3. Estimate Depreciation: Physical, functional, and economic obsolescence
  4. Add Land + Improvements: Sum adjusted improvement value and land
📉 Depreciation Categories:
Physical Deterioration:

Curable: Deferred maintenance items (HVAC, roofing, painting)

Incurable: Structural wear and tear due to age

Calculation: Actual costs for curable, age-life method for incurable

Functional Obsolescence:

Curable: Outdated systems that can be economically upgraded

Incurable: Design flaws, poor layout, inadequate ceiling heights

Calculation: Cost to cure or income loss from inferior design

Economic Obsolescence:

External Factors: Neighborhood decline, traffic pattern changes

Market Conditions: Oversupply, changing demand patterns

Calculation: Capitalized income loss from external factors

🎯 Underwriting Standards and Risk Analysis

Debt Service Coverage Ratio (DSCR)

📊 DSCR Formula:

DSCR = Net Operating Income ÷ Annual Debt Service

Example: $850,000 NOI ÷ $650,000 Debt Service = 1.31 DSCR

💼 Lender Requirements:
  • Minimum DSCR: 1.20x – 1.35x (varies by property type and lender)
  • Office Buildings: 1.25x minimum for stabilized properties
  • Retail Centers: 1.30x minimum due to tenant rollover risk
  • Industrial: 1.20x minimum for stable warehouse properties
  • Stressed DSCR: Tested at higher vacancy and lower rents

Loan-to-Value (LTV) Standards

🏦 Typical LTV Limits:
  • Stabilized Office: 75% – 80% LTV
  • Anchored Retail: 70% – 75% LTV
  • Industrial/Warehouse: 75% – 80% LTV
  • Value-Add Properties: 65% – 70% LTV
  • Owner-User Properties: 80% – 85% LTV (SBA loans)
📊 LTV Calculation:

LTV = Loan Amount ÷ Property Value

Example: $10,500,000 Loan ÷ $15,000,000 Value = 70% LTV

Risk Assessment Framework

🔍 Key Risk Factors:
Tenant Risk:
  • Tenant credit ratings and financial strength
  • Lease expiration schedule and rollover risk
  • Tenant concentration (largest tenant % of income)
  • Industry diversification and stability
Market Risk:
  • Market vacancy rates and absorption trends
  • New construction and competitive supply
  • Employment growth and economic drivers
  • Transportation access and infrastructure
Property Risk:
  • Age, condition, and functional obsolescence
  • Capital expenditure requirements
  • Environmental issues and compliance
  • Management intensity and operating complexity

🏢 Complete Office Building Investment Analysis

Professional Commercial Property Analysis (35 minutes):

Apply your commercial property knowledge to analyze a real office building investment opportunity:

🏢 Property: Metro Executive Center

Property Overview:

Location: Suburban business district, Dallas, TX

Type: Class B office building

Total SF: 85,000 SF (80,000 SF rentable)

Year Built: 1988 (renovated 2018)

Floors: 6 stories with elevator

Parking: 340 spaces (4.25 spaces per 1,000 SF)

Asking Price: $12,750,000

Current Financial Performance:

Gross Rental Income: $1,680,000 annually

Current Occupancy: 87% (13% vacancy)

Average Rent: $24.00 per SF (occupied space)

Market Rent: $26.50 per SF

Other Income: $45,000 (parking, storage)

Operating Expenses:
  • Property Taxes: $255,000
  • Insurance: $32,000
  • Utilities: $125,000
  • Maintenance & Repairs: $95,000
  • Management Fee: $85,000
  • Other Expenses: $38,000
Market Context:

Submarket Vacancy: 11%

Market Cap Rates: 6.25% – 7.50%

Recent Comparable Sales: $140-160 per SF

Market Trends: Stable demand, limited new construction

Major Tenants:
  • Law Firm (15,000 SF): Lease expires 2027
  • Accounting Firm (12,000 SF): Lease expires 2026
  • Insurance Agency (8,000 SF): Lease expires 2025
  • Various small tenants (balance): Mixed expirations

Complete Analysis Requirements:

1. Financial Analysis (25 points)
  • Calculate current and stabilized NOI
  • Determine going-in and stabilized cap rates
  • Analyze rent roll and lease expiration risk
  • Project 5-year cash flows
2. Valuation Analysis (20 points)
  • Income approach valuation (current and stabilized)
  • Sales comparison approach using comps
  • Reconcile values and recommend pricing
  • Analyze price per SF vs market
3. Financing Structure (15 points)
  • Design optimal financing structure
  • Calculate DSCR at current and stabilized NOI
  • Determine maximum loan amount
  • Analyze sensitivity to interest rate changes
4. Risk Assessment (20 points)
  • Tenant rollover and credit analysis
  • Market risk and competition assessment
  • Capital expenditure requirements
  • Exit strategy and hold period analysis
5. Investment Recommendation (20 points)
  • Clear buy/pass recommendation with justification
  • Maximum bid price with supporting analysis
  • Key risks and mitigation strategies
  • Value-add opportunities and execution plan

Your Commercial Property Analysis:

📋 Office Building Analysis Template (always visible)

METRO EXECUTIVE CENTER – OFFICE BUILDING ANALYSIS

  • PROPERTY OVERVIEW:
  • Property: Metro Executive Center, Dallas TX
  • Type: Class B office building, 6 stories
  • Size: 85,000 SF total, 80,000 SF rentable
  • Built: 1988, renovated 2018
  • Asking Price: $12,750,000 ($150 per SF)
  • Investment Challenge: ________________________________
  • CURRENT FINANCIAL PERFORMANCE:
  • Gross Rental Income: $1,680,000
  • Other Income: $45,000
  • Gross Revenue: $1,725,000
  • Current Occupancy: 87% (69,600 SF occupied)
  • Vacancy Loss: _____ (13% vacancy)
  • Effective Gross Income: $_____
  • Operating Expenses:
  • – Property Taxes: $255,000
  • – Insurance: $32,000
  • – Utilities: $125,000
  • – Maintenance & Repairs: $95,000
  • – Management Fee: $85,000
  • – Other Expenses: $38,000
  • – Total Operating Expenses: $_____
  • Current Net Operating Income (NOI): $_____
  • Going-in Cap Rate: ____% (NOI ÷ Ask Price)
  • STABILIZED PERFORMANCE ANALYSIS:
  • Market Rent: $26.50 per SF
  • Stabilized Occupancy: ____% (market vacancy: 11%)
  • Stabilized Rental Income: $_____
  • Stabilized Other Income: $_____
  • Stabilized Gross Revenue: $_____
  • Vacancy Allowance: $_____ (____% of gross)
  • Stabilized Effective Gross Income: $_____
  • Stabilized Operating Expenses: $_____ (adjust for occupancy)
  • Stabilized NOI: $_____
  • Stabilized Cap Rate: ____% (at asking price)
  • RENT ROLL ANALYSIS:
  • Current Average Rent: $24.00 per SF
  • Market Rent: $26.50 per SF
  • Rent Gap: $2.50 per SF (upside potential)
  • Major Tenant Analysis:
  • 1. Law Firm (15,000 SF, 18.75% of income):
  • – Current rent: $_____ per SF
  • – Lease expires: 2027
  • – Credit quality: ________________________________
  • – Renewal probability: ________________________________
  • 2. Accounting Firm (12,000 SF, 15% of income):
  • – Current rent: $_____ per SF
  • – Lease expires: 2026
  • – Credit quality: ________________________________
  • – Renewal probability: ________________________________
  • 3. Insurance Agency (8,000 SF, 10% of income):
  • – Current rent: $_____ per SF
  • – Lease expires: 2025
  • – Credit quality: ________________________________
  • – Renewal probability: ________________________________
  • Lease Rollover Risk Analysis:
  • – 2025 expirations: _____ SF (____% of building)
  • – 2026 expirations: _____ SF (____% of building)
  • – 2027 expirations: _____ SF (____% of building)
  • – Downtime for re-leasing: _____ months average
  • – Leasing costs: $_____ per SF for new tenants
  • VALUATION ANALYSIS:
  • Income Approach (Current Performance):
  • – Current NOI: $_____
  • – Market Cap Rate: ____% (use comparable sales)
  • – Indicated Value: $_____ ($_____ per SF)
  • Income Approach (Stabilized Performance):
  • – Stabilized NOI: $_____
  • – Market Cap Rate: ____%
  • – Stabilized Value: $_____ ($_____ per SF)
  • Sales Comparison Approach:
  • – Comparable sales range: $140-160 per SF
  • – Subject property adjustments:
  • * Location: ________________________________
  • * Age/condition: ________________________________
  • * Tenancy: ________________________________
  • * Size: ________________________________
  • – Adjusted value range: $_____ – $_____ per SF
  • – Indicated value: $_____ ($_____ per SF)
  • Value Reconciliation:
  • – Income approach (current): $_____
  • – Income approach (stabilized): $_____
  • – Sales comparison: $_____
  • – Final value estimate: $_____
  • – Value vs asking price: $_____
  • FINANCING ANALYSIS:
  • Proposed Financing Structure:
  • – Purchase price: $_____
  • – Down payment: $_____ (____% of price)
  • – Loan amount: $_____
  • – LTV ratio: ____%
  • – Interest rate: ____%
  • – Amortization: _____ years
  • – Annual debt service: $_____
  • Debt Service Coverage Analysis:
  • – Current NOI: $_____
  • – Current DSCR: _____ (NOI ÷ debt service)
  • – Stabilized NOI: $_____
  • – Stabilized DSCR: _____
  • – Lender minimum DSCR: 1.25x
  • – Maximum supportable loan: $_____
  • Financing Sensitivity Analysis:
  • – Impact of +0.5% interest rate: $_____ less loan
  • – Impact of -10% NOI: _____ DSCR
  • – Break-even occupancy: ____%
  • RISK ASSESSMENT:
  • Tenant Credit and Rollover Risk:
  • – Major tenant concentration: ____% top 3 tenants
  • – Industry diversification: ________________________________
  • – Average remaining lease term: _____ years
  • – Near-term rollover risk (2025-2026): ____% of income
  • – Tenant improvement costs: $_____ per SF
  • – Leasing commissions: ____% of rent
  • Market and Competition Risk:
  • – Submarket vacancy trend: ________________________________
  • – New construction pipeline: ________________________________
  • – Employment growth drivers: ________________________________
  • – Transportation access: ________________________________
  • – Competing properties: ________________________________
  • Property and Operational Risk:
  • – Deferred maintenance items: ________________________________
  • – Capital expenditure needs (5-year): $_____
  • – HVAC system age/condition: ________________________________
  • – Elevator modernization needs: ________________________________
  • – Parking adequacy: _____ spaces per 1,000 SF
  • – Environmental concerns: ________________________________
  • 5-YEAR CASH FLOW PROJECTION:
  • Year 1:
  • – Gross revenue: $_____
  • – Operating expenses: $_____
  • – NOI: $_____
  • – Debt service: $_____
  • – Before-tax cash flow: $_____
  • Year 2:
  • – Gross revenue: $_____ (+____% growth)
  • – Operating expenses: $_____ (+____% growth)
  • – NOI: $_____
  • – Capital expenditures: $_____
  • – After-tax cash flow: $_____
  • Year 3-5 Summary:
  • – Average annual NOI growth: ____%
  • – Average annual cash flow: $_____
  • – Cumulative capital expenditures: $_____
  • – Exit cap rate assumption: ____%
  • – Projected sale price (Year 5): $_____
  • INVESTMENT RETURNS ANALYSIS:
  • Year 1 Returns:
  • – Cash-on-cash return: ____%
  • – Cap rate (purchase): ____%
  • 5-Year Hold Analysis:
  • – Total equity invested: $_____
  • – Total cash distributions: $_____
  • – Sale proceeds (Year 5): $_____
  • – Total return: $_____
  • – IRR: ____%
  • – Equity multiple: _____x
  • VALUE-ADD OPPORTUNITIES:
  • Revenue Enhancement:
  • – Rent increases to market: $_____ annual upside
  • – Reduce vacancy through marketing: $_____ annual
  • – Add revenue streams: ________________________________
  • – Expense ratio improvement: ____% target
  • Operational Improvements:
  • – Property management optimization: ________________________________
  • – Energy efficiency upgrades: ________________________________
  • – Technology improvements: ________________________________
  • – Tenant amenity additions: ________________________________
  • Capital Improvement Plan:
  • Year 1: ________________________________ ($_____ cost)
  • Year 2: ________________________________ ($_____ cost)
  • Year 3: ________________________________ ($_____ cost)
  • Total capex budget: $_____
  • Expected NOI impact: $_____ increase
  • INVESTMENT RECOMMENDATION:
  • Recommendation: _____ (BUY/PASS)
  • Supporting Analysis:
  • 1. ________________________________
  • 2. ________________________________
  • 3. ________________________________
  • 4. ________________________________
  • 5. ________________________________
  • Maximum Bid Price: $_____
  • Justification: ________________________________
  • Key Risks and Mitigation:
  • Primary Risk: ________________________________
  • Mitigation: ________________________________
  • Secondary Risk: ________________________________
  • Mitigation: ________________________________
  • Deal Structure Recommendations:
  • – Purchase price: $_____
  • – Financing: ____% LTV, ____% rate
  • – Contingencies: ________________________________
  • – Due diligence period: _____ days
  • – Closing timeline: _____ days
  • EXIT STRATEGY:
  • Hold Period: _____ years
  • Exit Strategy: ________________________________
  • Target Buyer Profile: ________________________________
  • Expected Exit Cap Rate: ____%
  • Projected Sale Price: $_____
  • Total Investment Return: ____% IRR
  • LESSONS LEARNED:
  • Key Analysis Insights:
  • – ________________________________
  • – ________________________________
  • – ________________________________
  • Commercial Investment Principles:
  • – ________________________________
  • – ________________________________
  • – ________________________________
  • Next Steps for Implementation:
  • – ________________________________
  • – ________________________________
  • – ________________________________
0 characters

🎯 Commercial Property Mastery

1

Property classification determines risk, returns, and investor pool

2

Lease structure fundamentally impacts property cash flows

3

Triple-net leases provide predictable income streams

4

Income approach valuation is primary method for commercial properties

5

Cap rate selection requires market knowledge and risk assessment

6

DSCR analysis ensures adequate cash flow for debt service

7

Tenant credit quality directly impacts property value

8

Lease rollover risk requires careful timing analysis

9

Professional underwriting standards protect lenders and investors

10

You now analyze commercial properties like institutional investors

✅ Commercial Property Knowledge Check

Question 1:

What characterizes a Class A office building?

Question 2:

In a triple net (NNN) lease, the tenant pays:

Question 3:

What is the primary valuation method for commercial income properties?

Question 4:

How is Debt Service Coverage Ratio (DSCR) calculated?

Question 5:

What factors influence cap rate selection for commercial properties?

Question 6:

What is typically the minimum DSCR requirement for commercial loans?

Question 7:

Which property type typically commands the lowest cap rates?

Question 8:

What is lease rollover risk in commercial real estate?

Question 9:

In commercial property analysis, what does NOI stand for?

Question 10:

Why is professional commercial property analysis important?

🎯 Ready to Complete Lesson 106?

Take the quiz to finish this lesson and advance your commercial property analysis skills.

Students achieving 90%+ across all lessons qualify for potential benefits with lending partners and employers.

⏱️ Time spent: 35 min 📚 Progress: 106/144 lessons 🎯 Quiz: Not yet taken

Next Up:

Lesson 107: Mixed-Use Developments – Master complex mixed-use property analysis and opportunities

← Lesson 105: Residential Rentals Lesson 107: Mixed-Use →