Commercial Real Estate

What determines the quality of an income-producing property

Commercial real estate investment is judged not by how the space looks, nor by the yield the seller states, but by the quality of the cash flow: who pays the rent, on what terms, what costs the owner carries, and what remains when the tenant changes.

Stated yield versus actual yield

Gross rental yield is calculated from the rental rate, but the owner receives NOI: income after operating expenses such as management, maintenance, repairs, insurance, taxes, and vacancy periods. NOI is what cap rate and the actual return on invested capital are calculated from, and that is the figure to verify, not the one stated in the offer.

The tenant matters more than the rate

Yield rests on the tenant: their business model and ability to pay, the lease term, indexation and termination clauses, the security deposit, and how quickly the space can be re-let if it falls vacant.

Liquidity and exit scenario

A property is also assessed through its future sale: who it can be resold to, how universal the format is, whether the price depends on a single tenant, and what happens to its value if the space becomes empty.

What is checked before purchase

• location, foot traffic, and demand for the format;
• rental income, lease agreements, and tenant quality;
• operating expenses, NOI, cap rate, and ROI;
• price relative to comparable properties on the market;
• technical condition of the building and upcoming capital expenditure;
• tax treatment of ownership and the ownership structure;
• property risks, vacancy, and exit scenario.

Technical, legal, and tax checks are carried out by specialists in those fields. My role is to organise their work and assess how the results affect the investment decision.

If you are assessing whether this type of investment suits you, start with a pre-investment assessment. If a specific property is already chosen, the next step is a deal audit. Once the decision is made, the next step is deal support.