A commercial building has revenue, expenses, earnings, a value, a capital structure and an exit. It is a small company with tenants instead of customers. Bankers and buyers already look at it that way. Most owners don’t, until the day they need to refinance or sell.
That is the opening of Think Like a Banker, my guide for commercial property owners (now in review on Amazon). I spent much of my career on the bank side of commercial real estate, underwriting loans and selling properties lenders took back. The owners who did best were the ones who saw their building the way the bank did: as a set of numbers someone across the table would test. This post is the short version. The long version, the full map of how a property sale runs like an M&A deal, is in How Commercial Real Estate Works Like Investment Banking.
The four questions a banker asks
Answer them first and you control the conversation
Bankers don’t ask “is this a good company?” They ask four narrower questions, and every serious lender and buyer will run your property through the same four:
In company terms: NOI is your EBITDA, the cap rate is your multiple turned upside down, the mortgage and your equity are the capital structure, and a sale or refinance is the exit.
An Orlando flex building, read like a company
Hypothetical, with round numbers
Take a 24,000 SF flex building in Orlando, fully leased on NNN terms at $14.00/SF. Read it the way a credit analyst reads a small company’s income statement:
| Revenue: 24,000 SF × $14.00 | $336,000 | Sales |
| Less vacancy and credit loss (5%) | −$16,800 | Bad debt |
| Effective gross income | $319,200 | Net revenue |
| Less unreimbursed costs (management, reserves) | −$40,200 | Operating costs |
| Net operating income (NOI) | $279,000 | EBITDA |
| Value at a 7.5% cap rate (NOI ÷ 0.075) | $3,720,000 | 13.3× earnings |
Now the lender’s view. At 7.00% on a 25-year amortization, every $1 of loan costs about $0.0848 a year. A bank that wants 1.25× debt service coverage will let the building carry $223,200 a year of payments ($279,000 ÷ 1.25), which supports a loan of about $2.63 million. The bank’s 70% loan-to-value cap allows $2.60 million. The lower number wins, so this building borrows about $2.6 million. Run your own with the DSCR calculator.
Clean the earnings first
Bankers do this before they ever market a company
Before a banker shows a company to buyers, they normalize its earnings so a buyer can trust them. Do the same with your building, because at 13.3× every dollar matters:
- Add back one-time costs. A $22,000 roof repair run through last year’s expenses is a capital item, not a recurring cost. Show it separately.
- Fix the related-party lease. If your own company rents a suite at $8/SF in a $14 building, a buyer values the lease that exists. Put it at market before you sell, or expect to be priced on the $8.
- Add what is missing. No management fee because you manage it yourself? A buyer will add one. Better to show it honestly than lose credibility in due diligence.
In this example, cleanup worth $30,000 a year of NOI is worth about $400,000 of price ($30,000 ÷ 0.075). Cleanup that a buyer later disproves costs you more than that, in a re-trade at the end of due diligence.
Plan the exit like a deal
Hold, refinance, sell, sale-leaseback or partner
A banker advising a company owner lays out every path before recommending one. You should see hold, refinance, sale, sale-leaseback and a partner recapitalization side by side, with the tax cost of each, including recapture and whether a 1031 exchange fits. If selling wins, run it like an M&A process: a data room before the first call, a defined buyer universe, a deadline for offers, and the offer most likely to close rather than the highest headline. The sell-side section of the companion guide covers each step, and the capital stack section shows how the debt you carry changes what a buyer can pay.
Where the analogy breaks
A building is like a company in most ways that matter. Not all.
It has a roof, a flood zone and an insurance bill. In Florida, physical risk can move value as much as rent does. Location is the market: a company’s value is set nationally, a building’s by its submarket, sometimes by which side of a highway it sits on. The tax tools differ, starting with the 1031 exchange and depreciation. And the licenses differ: investment bankers who sell securities register with FINRA; Florida real estate brokers are licensed under Chapter 475 and sell real property, not securities. More in where the analogy breaks.
Learn it live: the free workshop
Third Wednesday of every month · 1:00 PM ET
Thinking like the bank works from both sides of the table. Owners use it to sell. Buyers use it to underwrite bank-owned and distressed property at the price the seller will actually take. My free monthly workshop, Think Like the Bank, walks through that underwriting live, with Florida deals and a free book for every registrant.
Think Like the Bank: free live workshop
Underwrite distressed commercial property honestly and price it the way the seller does. Register and get the free book.
Prefer to read? All of our free books are in the library.
Frequently asked questions
What does “your building is a company” mean?+
A commercial building has revenue (rent), expenses, earnings (net operating income), a value set by a multiple of those earnings, a capital structure (the mortgage and the equity) and an exit (a sale or refinance). Lenders and buyers already analyze it the way they would a small company with tenants instead of customers. Owners get better outcomes when they read it the same way before they refinance or sell.
Is NOI the same as EBITDA?+
Close. Net operating income is rental revenue minus vacancy and operating expenses, before debt service, depreciation and income taxes, which is the same idea as EBITDA. Like EBITDA, buyers adjust it: one-time repairs are added back, below-market related-party leases are marked to what the lease actually pays, and missing costs such as management and reserves are added in.
How is a cap rate like a price-to-earnings multiple?+
A cap rate is NOI divided by price. Flip it and you have price divided by earnings. A 7.5% cap rate is a 13.3× earnings multiple; a 6% cap rate is about 16.7×. Every dollar of NOI added or lost moves value by that multiple, which is why a $30,000 NOI change on a 7.5% cap property is worth about $400,000.
How does a bank decide how much to lend on my building?+
Lenders size the loan by the lowest of several tests, usually debt service coverage (NOI divided by annual debt payments, often at least 1.25×), loan-to-value (often 65–75% for commercial property) and sometimes debt yield. In the Orlando example on this page, coverage allows about $2.63 million and 70% LTV allows about $2.60 million, so the loan is about $2.60 million.
Should I sell my commercial building like an M&A deal?+
For most institutional-quality properties, yes: clean the earnings, build a data room before marketing, define the buyer universe, run a timed process with a call for offers, and choose the offer most likely to close, not only the highest price. The companion guide How Commercial Real Estate Works Like Investment Banking walks through the full process.
Where does the company analogy break?+
A building has a roof, a flood zone and an insurance bill; its value is set by its submarket rather than a national market; it has tax tools a company sale does not, led by the 1031 exchange; and it is sold by Florida real estate brokers licensed under Chapter 475, not by securities-licensed bankers.
Illustrative only. The Orlando building is hypothetical; rents, cap rates, loan terms and lender tests vary by property, market and lender. This is general information, not legal, tax, appraisal or investment advice. Linton Global Solutions is a Florida real estate brokerage (BK703722), not a broker-dealer, investment adviser or lender.
