Commercial property insights for better decisions.
Guides to investment underwriting, commercial leasing and development land for investors, owners and tenants across Ontario. Use them to frame a conversation about a specific property, not as a substitute for property-level diligence.
INVESTMENT SALES
Read beyond the cap rate.
A cap rate is a useful starting point: divide a property's annual net operating income by its purchase price. The result does not tell you whether the stated income is durable, whether the leases can be renewed or how much capital the building will need.
Start by checking each lease against the rent roll. Separate recoverable expenses from costs the owner actually bears. Allow for realistic vacancy, leasing commissions, tenant improvements and near-term repairs. Then look at financing and test what happens if rent, interest rates or your eventual sale price differs from your base case.
Confirm how the seller calculated net operating income.
Review lease expiries, deposits, arrears and tenant concentration.
Model capital spending and debt service separately from operating income.
Compare more than one hold and exit scenario.
Quick investment check
6.00%Indicative cap rate
1.33×NOI ÷ debt service
Illustrative calculation only. NOI should be verified and debt service should reflect the actual loan terms.
A quoted rent is one part of the occupancy cost. Net rent, additional rent, utilities, annual increases, free rent, improvement allowances and repair obligations can change the economics materially for both landlord and tenant.
When comparing locations, model the full lease term. Pay close attention to renewal rights, permitted use, signage, assignment, restoration and who pays when major systems or exterior elements fail. A stronger tenant covenant and a well-structured lease can affect the owner's financing and eventual sale.
Zoning can suggest a range of uses, but it does not guarantee a project can be built economically. Access, servicing, environmental conditions, parking, heritage constraints, construction costs and approval timelines can all change the achievable outcome.
Work backward from a realistic finished value, then deduct construction costs, financing, fees, risk allowance and required profit. Test several concepts and identify what would have to be true for each one to work. Bring planning, engineering, environmental and legal specialists into due diligence where needed.
