THE SHORT ANSWER

Commercial deal analysis connects lease obligations with property costs, financing, capital spending, and future leasing events. The key is understanding when income is earned and what it costs to preserve or replace it. An occupied building can still face substantial cash needs when leases expire.

Turn leases into a dated income schedule

Abstract base rent, rent steps, expiration dates, options, recoveries, guarantees, concessions, and termination rights. Compare the schedule with actual collections and outstanding balances. Read the executed leases and amendments rather than relying on a marketing summary.

Show tenant concentration. A property receiving half its rent from one business needs a clear scenario for that tenant leaving. Occupancy percentage alone will not show the financial effect.

Separate operating expenses from leasing and capital costs

Build recurring taxes, insurance, utilities, repairs, management, and common-area costs. Determine which amounts can actually be recovered under each lease, when they are billed, and whether collection limitations apply.

Model tenant improvements, leasing commissions, major replacements, and downtime separately as appropriate to the analysis. A net lease may shift certain expenses to a tenant, but the exact lease determines the allocation and exceptions.

For a hypothetical building, $300,000 effective annual income minus $120,000 operating expenses yields $180,000 NOI. Subtracting $120,000 debt service leaves $60,000 before capital and leasing costs. A $70,000 build-out and commission budget in that year creates an additional funding need. This is an educational example only.

Test debt, valuation, and the holding period together

Evaluate DSCR, LTV, and debt yield using the lender's definitions and your own transparent operating model. Include rate resets, interest-only expiry, fees, reserves, and maturity balances.

For the exit, show the income being capitalized, chosen exit cap rate, selling costs, and loan payoff. If the model includes IRR, label whether it is property-level or investor-level and whether fees are deducted.

A projected sale before a major lease expires can hide a rollover cost a buyer may still price in. Consider how the lease schedule affects the property at the proposed sale date.

Write a downside case and a decision memo

Model a tenant departure, longer vacancy, higher improvement costs, lower sale value, and less available refinance debt. Estimate the maximum cash shortfall, not just the average annual cash flow.

  • Document which lease and cost inputs are verified.
  • List required property and environmental inspections.
  • Explain who funds a shortfall and under what agreement.
  • Identify the events that would require revising or abandoning the plan.
  • Keep evidence and assumptions attached to the final analysis.

Common questions

Can I analyze commercial property using an apartment spreadsheet?

Some metrics overlap, but the model must handle the actual leases, expense recoveries, tenant improvements, commissions, and lease expirations.

Does a triple-net lease eliminate owner costs?

No blanket assumption is safe. Read the lease's allocation, exclusions, capital obligations, and tenant-credit provisions.

Sources & further reading

Educational content from Real Estate 101. Updated 2026-09-05. Refer to the original sources and your professional advisers for transaction-specific requirements.