Glossary / Space and measurement
Also known as: NOI
A property's income after operating expenses but before debt service, capital expenditures, depreciation, and income taxes. It measures how much the building earns from operations and is the starting point for valuing it with a cap rate.
Cove defines NOI as a property's income after operating expenses but before debt service and capital costs. The calculation starts with potential gross income, subtracts vacancy and credit loss, adds other income such as parking and expense reimbursements, and subtracts operating expenses like management, maintenance, insurance, utilities, and property taxes.
Ryan O'Connell Finance lists what NOI excludes: debt service, capital expenditures, income taxes, and depreciation. Because it leaves out financing, NOI can be compared across properties regardless of how they are financed.
NOI is how landlords judge the leases you bring them. Rent from new and renewed leases raises income, and vacancy lowers it. Cove notes that investors typically value a property by dividing NOI by a market Cap rate, so each dollar of added annual NOI adds more than a dollar of value.
For landlord rep brokers, this explains why owners focus on rent, concessions, and how quickly space is leased, and it gives you a way to frame the value of a deal to an owner. Whether your commission is treated as an operating expense or a capital cost in the owner's books is an accounting question for the owner, so do not assume either way.
When you pitch a deal to an owner, show what it adds to annual NOI, since that is the number the owner and its lender will look at.
For example, a hypothetical new lease adds $100,000 a year to a building's NOI. At a hypothetical 6 percent cap rate, that added income supports about $1,666,667 in value ($100,000 divided by 0.06).
