Deal Drivers

When evaluating small commercial properties, buyers weigh the pros and cons of single-tenant NNN (net net net) leases versus mixed-use developments. For a recent single-tenant NNN deal in Oklahoma City, the cap rate was 6.5% with a purchase price of $1.2 million and annual net operating income (NOI) of $78,000. In contrast, a mixed-use property in Denver had a cap rate of 5.8% with a purchase price of $2.5 million and annual NOI of $145,000. Buyers walk away when the math doesn't add up, such as a property with a cap rate below 5% or a loan-to-value (LTV) ratio above 80%. For instance, a property with a purchase price of $1.8 million, annual NOI of $80,000, and an LTV ratio of 85% would likely be rejected due to the high debt service and low potential for cash flow. Ultimately, buyers focus on deals with strong financials, such as a 7% cap rate and 70% LTV ratio, to ensure a solid return on investment (ROI).