Commercial
Finance
Leasing
Commercial real estate looks complex until you anchor on three ideas: cap rates, lease structure, and tenant mix. Once you see those levers, underwriting gets repeatable.
Cap Rates (Definition + Use)
- Definition: NOI / Purchase Price.
- Use: A shorthand for yield; also a risk proxy by market/asset quality.
- Move: Grow NOI or buy at a better multiple; small NOI changes swing value.
Lease Structures
- Gross: landlord pays expenses; simpler, more risk on owner.
- NNN: tenant reimburses taxes/insurance/CAM; steadier NOI but watch CAM caps.
- Modified Gross: splits the difference; read the expense stops carefully.
Tenant Mix (Risk and Resilience)
- Diversify cashflow: limit exposure to any one tenant unless credit is stellar.
- Complementary uses: co-tenants that drive traffic to each other reduce vacancy risk.
- Lease rollover map: avoid multiple big expirations in the same year.
Vacancy and Rollover Risk
Value swings with downtime. Underwrite realistic downtime and TI/LC (tenant improvement + leasing commissions) by tenant type.
Developer’s Angle
- Model unit-level leases with expirations and option terms; visualize rollover by year.
- Track NNN recovery vs actuals; CAM caps can hide leakage.
- Scenario test: one anchor dark, two in-line vacants; does DSCR hold?
Utah/Regional Nuance
Tech-heavy corridors (Lehi/Draper) can have higher rent PSF but also more exposure to sector swings. Balance with service/medical tenants that are sticky.
Takeaway
CRE is three dials: cap rate, lease structure, and tenant mix. Map rollover, stress downtime, and mind CAM language. Everything else is detail.