Commercial real estate operates on fundamentally different principles than residential property. Valuations are driven primarily by net operating income (NOI) and capitalization rates rather than comparable sales. Understanding the relationship between these metrics — and the factors that influence them — is essential for evaluating any commercial investment opportunity.

Lease structure analysis is the backbone of commercial real estate due diligence. Triple-net (NNN) leases shift operating expenses to tenants, creating predictable income streams. Gross leases include expenses in rent, giving landlords more control but also more exposure to cost inflation. Modified gross leases split the difference. Each structure has implications for cash flow stability, tenant quality, and property management burden.

Tenant analysis in commercial real estate extends well beyond creditworthiness. The strength of a tenant's business model, their industry outlook, lease term remaining, and renewal probability all factor into property valuation. A building with a single investment-grade tenant on a 15-year lease is valued very differently from one with multiple small tenants on short-term agreements — even if current rents are identical.

This guide is part of Brick & Bit's professional development series. Content is regularly updated to reflect current market conditions.