---
title: Cap Rates & What Your Commercial Building Is Worth
description: How cap rate, NOI, price per square foot, DSCR, and debt yield set the value of a commercial building, worked on a 50,000 SF South Austin flex-industrial example.
image: https://www.roesingercre.com/hubfs/AI-Generated%20Media/Images/Flex%20Industrial%20Building%20at%20Golden%20Hour.png
---

[Skip to content](https://www.roesingercre.com/resources/cap-rate-commercial-property-value#main)

[RROESINGERCOMMERCIAL REAL ESTATE](https://www.roesingercre.com/?hsLang=en)

[What we do](https://www.roesingercre.com/home?hsLang=en#what-we-do) [Services](https://www.roesingercre.com/home?hsLang=en#services) [Where we focus](https://www.roesingercre.com/home?hsLang=en#focus) [Our approach](https://www.roesingercre.com/home?hsLang=en#approach) [Resources](https://www.roesingercre.com/resources?hsLang=en)

[512.949.1418](tel:+15129491418)[Free consultation](https://www.roesingercre.com/resources/cap-rate-commercial-property-value#contact)

[Home](https://www.roesingercre.com/?hsLang=en)/[Resources](https://www.roesingercre.com/resources?hsLang=en)/Cap rates and what your building is worth

Valuation

# Cap rates and what your commercial building is worth

An income property is worth its net operating income divided by the cap rate buyers will accept, and the buyer's lender decides how much of that price they can borrow. Here is the math, worked on a real-size example.

By **Zach Roesinger**, Designated Broker, Roesinger LLCUpdated October 12, 2026[Share on LinkedIn](https://www.linkedin.com/sharing/share-offsite/?url=https%3A%2F%2Fwww.roesingercre.com%2Fresources%2Fcap-rate-commercial-property-value)[Post on X](https://twitter.com/intent/tweet?url=https%3A%2F%2Fwww.roesingercre.com%2Fresources%2Fcap-rate-commercial-property-value&text=Cap+rates+and+what+your+building+is+worth&via=LandmanZachATX)

**Short answer:** value = NOI ÷ cap rate. A 50,000 SF flex-industrial building with $487,500 of net operating income, priced at a 6.50% cap rate, is worth $7,500,000, or $150 per square foot. The cap rate reflects risk: tenant credit, lease term, building quality, location, and the cost of debt. Lower risk means a lower cap rate and a higher price.

## Step 1: Get NOI right

Net operating income is all rental and other income, minus vacancy and credit loss, minus operating expenses. It is measured before debt service, depreciation, income taxes, and capital improvements.

| Line | What buyers do with it |
| --- | --- |
| Base rent | Underwrite in-place leases from the rent roll, then roll each suite to market at expiration |
| Expense reimbursements | Count only what the leases actually allow you to recover |
| Vacancy and credit loss | Apply a market vacancy factor even if the building is full today |
| Operating expenses | Taxes (reassessed at the sale price in Texas), insurance, repairs, management, utilities |
| Reserves | Many buyers deduct a replacement reserve for roof, HVAC, and paving |

The most common pricing gap between owners and buyers comes from NOI, not cap rate. Owners quote last year's income; buyers re-underwrite taxes at the new price, add a management fee even if the owner self-manages, and add vacancy.

## Step 2: Apply a market cap rate

Cap rates come from comparable sales: sale price divided by in-place NOI at the time of sale. Using the example building:

| Cap rate | Value | Per SF | Change vs. 6.50% |
| --- | --- | --- | --- |
| 6.00% | $8,125,000 | $163 | +$625,000 |
| 6.50% | $7,500,000 | $150 | — |
| 7.00% | $6,964,000 | $139 | −$536,000 |
| 7.50% | $6,500,000 | $130 | −$1,000,000 |

For reference, national research in 2026 placed stabilized industrial outdoor storage at roughly 6.00% to 6.75% in primary markets and 6.75% to 7.75% in secondary markets ([Matthews](https://www.matthews.com/market_insights/ios-sector-update-2026)). Local small-bay flex pricing depends on Austin sales comparables and how far in-place rents are from market.

## Step 3: Check it against price per square foot and replacement cost

Cap rate is the primary method for leased property, but buyers cross-check it. If the implied price per square foot is far above recent comparable sales or above what it would cost to build new, the cap rate is probably too low. Owner-user buyers, who will occupy the building, often price on per-square-foot and occupancy cost rather than cap rate, which is why vacant or near-vacant small buildings can sell for more to a user than to an investor.

## Step 4: See it from the lender's side

Most buyers finance, so the loan a lender will make often sets the ceiling on price. Lenders size loans on three tests and lend the lowest result:

- **Loan-to-value (LTV):** loan ÷ value, often 60% to 70% for stabilized commercial property.
- **Debt service coverage ratio (DSCR):** NOI ÷ annual principal and interest, often a minimum of about 1.20x to 1.35x.
- **Debt yield:** NOI ÷ loan amount, a rate-independent test of how much income backs each loan dollar.

Illustration for the example building, assuming a 6.50% interest rate on a 25-year amortization (rates change daily; this is an example, not a quote):

| Metric | Result |
| --- | --- |
| Loan at 65% LTV | $4,875,000 |
| Annual debt service (8.10% loan constant) | About $395,000 |
| DSCR | 1.23x |
| Debt yield | 10.0% |
| Maximum loan at 1.25x DSCR | About $4.81 million |
| Cash flow after debt service on $2.625M equity | About 3.5% cash-on-cash |

Notice the loan constant (8.10%) is above the cap rate (6.50%). That is negative leverage: each borrowed dollar costs more than the property yields, so year-one cash-on-cash return falls below the cap rate. Buyers accept that only when they expect NOI to grow, which is why rent growth and below-market leases drive pricing so heavily right now.

## How owners increase value

Because value is NOI divided by cap rate, every dollar of durable NOI is worth roughly 15 times itself at a 6.50% cap. If below-market leases in the example roll to market and NOI rises by $75,000, value rises by about **$1.15 million**. The most common levers:

- Lease vacant suites and roll below-market leases to market
- Convert gross leases to triple-net so expenses are recovered
- Extend lease term or add credit tenants to lower the cap rate buyers apply
- Protest property taxes and control operating costs
- Fix deferred maintenance that buyers would otherwise price as risk

## Frequently asked questions

### What is a cap rate?

The capitalization rate is net operating income divided by price or value. It is the unlevered first-year yield a buyer receives.

### Is a higher cap rate better?

For a buyer, a higher cap rate means more income per dollar paid but usually more risk. For a seller, a lower cap rate means a higher price.

### How do I find out what my building is worth?

Start with a broker opinion of value built on your rent roll, operating statements, and recent comparable sales. Roesinger provides BOVs as a free consultation for owners considering a sale. A BOV is not an appraisal.

This guide is general information, not legal, tax, lending, or investment advice. The example property and financing terms are illustrative only and are not an offering. Roesinger LLC is a licensed Texas real estate broker.

Share this guide[LinkedIn](https://www.linkedin.com/sharing/share-offsite/?url=https%3A%2F%2Fwww.roesingercre.com%2Fresources%2Fcap-rate-commercial-property-value)[X](https://twitter.com/intent/tweet?url=https%3A%2F%2Fwww.roesingercre.com%2Fresources%2Fcap-rate-commercial-property-value&text=Cap+rates+and+what+your+building+is+worth&via=LandmanZachATX)[Facebook](https://www.facebook.com/sharer/sharer.php?u=https%3A%2F%2Fwww.roesingercre.com%2Fresources%2Fcap-rate-commercial-property-value)[Email](mailto:?subject=Cap+rates+and+what+your+building+is+worth&body=https%3A%2F%2Fwww.roesingercre.com%2Fresources%2Fcap-rate-commercial-property-value)

Follow Zach[LinkedIn](https://www.linkedin.com/in/zachroesinger)[X](https://x.com/LandmanZachATX)[Instagram](https://www.instagram.com/roesingercre/)[TikTok](https://www.tiktok.com/@atx_colorado_cowboy)[Facebook](https://www.facebook.com/profile.php?id=61592593869594)[Roesinger on LinkedIn](https://www.linkedin.com/company/roesinger/)

R

### About the author

Zach Roesinger is the designated broker of Roesinger LLC, an Austin commercial real estate brokerage focused on flex-industrial, industrial outdoor storage, land, and investment sales across the Texas Triangle. He also buys value-add flex-industrial property as a principal, so the underwriting in these guides is the same screen he runs on his own acquisitions.

[LinkedIn](https://www.linkedin.com/in/zachroesinger) · [X](https://x.com/LandmanZachATX) · [512.949.1418](tel:+15129491418)

### Get a straight answer on your property

Free consultation and a no-obligation quote. Zach replies within one business day.

[Request a consultation](https://www.roesingercre.com/resources/cap-rate-commercial-property-value#contact)

### Browse by topic

- [Asset classes: flex, IOS, small-bay, cold storage](https://www.roesingercre.com/resources?hsLang=en#asset-classes)
- [Land and development](https://www.roesingercre.com/resources?hsLang=en#land)
- [Texas Triangle market updates](https://www.roesingercre.com/resources?hsLang=en#markets)
- [Owner and tenant decisions](https://www.roesingercre.com/resources?hsLang=en#owners-tenants)
- [Valuation, selling, and structuring](https://www.roesingercre.com/resources?hsLang=en#structure-value)
- [Glossary](https://www.roesingercre.com/resources?hsLang=en#glossary)

### Most read

- [What is flex-industrial space?](https://www.roesingercre.com/resources/what-is-flex-industrial?hsLang=en)
- [Industrial outdoor storage (IOS) guide](https://www.roesingercre.com/resources/industrial-outdoor-storage-guide?hsLang=en)
- [Cap rates and what your building is worth](https://www.roesingercre.com/resources/cap-rate-commercial-property-value)
- [Austin industrial market update](https://www.roesingercre.com/resources/austin-industrial-market?hsLang=en)
- [Small-bay industrial investing](https://www.roesingercre.com/resources/small-bay-industrial-investing?hsLang=en)
- [All resources](https://www.roesingercre.com/resources?hsLang=en)

### Follow Zach

[LinkedIn](https://www.linkedin.com/in/zachroesinger)[X](https://x.com/LandmanZachATX)[Instagram](https://www.instagram.com/roesingercre/)[TikTok](https://www.tiktok.com/@atx_colorado_cowboy)[Facebook](https://www.facebook.com/profile.php?id=61592593869594)

Start a conversation

## Request a free consultation.

Tell us about the building or the requirement. You get a straight answer on what it would take and what it would cost, at no charge and with no obligation.

Call or text · [512.949.1418](tel:+15129491418)Email · [info@RoesingerCRE.com](mailto:info@RoesingerCRE.com)Office · St. Elmo, South Austin

[RROESINGERCOMMERCIAL REAL ESTATE](https://www.roesingercre.com/?hsLang=en)

Flex-industrial, industrial outdoor storage, land, and investment sales across the Texas Triangle.

[Services](https://www.roesingercre.com/home?hsLang=en#services)[Where we focus](https://www.roesingercre.com/home?hsLang=en#focus)[Resources](https://www.roesingercre.com/resources?hsLang=en)[Contact](https://www.roesingercre.com/contact?hsLang=en)

[LinkedIn](https://www.linkedin.com/company/roesinger/)[Facebook](https://www.facebook.com/profile.php?id=61592593869594)[X](https://x.com/LandmanZachATX)[Instagram](https://www.instagram.com/roesingercre/)[TikTok](https://www.tiktok.com/@atx_colorado_cowboy)

[Texas Real Estate Commission Information About Brokerage Services](https://www.roesingercre.com/hubfs/IABS_Roesinger.pdf?hsLang=en)|[Texas Real Estate Commission Consumer Protection Notice](https://www.trec.texas.gov/forms/consumer-protection-notice)

Roesinger LLC · TREC Broker License No. 04193-BENT · Zachary Roesinger, Designated Broker, TREC No. 733765 · [512.949.1418](tel:+15129491418) · [info@RoesingerCRE.com](mailto:info@RoesingerCRE.com)

[Privacy Policy](https://www.roesingercre.com/privacy-policy?hsLang=en) · [Legal](https://www.roesingercre.com/legal?hsLang=en) · © 2026 Roesinger LLC. All rights reserved.

[Call](tel:+15129491418)[Text](sms:+15129491418)[Free consult](https://www.roesingercre.com/resources/cap-rate-commercial-property-value#contact)

```json
{
  "@context" : "https://schema.org",
  "@id" : "https://www.roesingercre.com/#organization",
  "@type" : "RealEstateAgent",
  "address" : {
    "@type" : "PostalAddress",
    "addressCountry" : "US",
    "addressLocality" : "Austin",
    "addressRegion" : "TX",
    "postalCode" : "78745",
    "streetAddress" : "5301 Suburban Dr"
  },
  "areaServed" : [ {
    "@type" : "City",
    "name" : "Austin"
  }, {
    "@type" : "City",
    "name" : "San Antonio"
  }, {
    "@type" : "City",
    "name" : "Houston"
  }, {
    "@type" : "City",
    "name" : "Dallas"
  }, {
    "@type" : "City",
    "name" : "Fort Worth"
  }, {
    "@type" : "State",
    "name" : "Texas"
  } ],
  "description" : "Austin, Texas commercial real estate brokerage and principal investor specializing in flex-industrial, industrial outdoor storage (IOS), land, and data center site selection across the Texas Triangle.",
  "founder" : {
    "@type" : "Person",
    "jobTitle" : "Broker and Principal",
    "name" : "Zach Roesinger",
    "sameAs" : [ "https://www.linkedin.com/in/zachroesinger", "https://x.com/LandmanZachATX", "https://www.instagram.com/zach.roesinger" ]
  },
  "hasCredential" : {
    "@type" : "EducationalOccupationalCredential",
    "identifier" : "733765-B",
    "name" : "Texas Real Estate Commission Broker License"
  },
  "image" : "https://www.roesingercre.com/hubfs/roesinger-logo.png",
  "knowsAbout" : [ "Flex-industrial real estate", "Industrial outdoor storage", "Industrial land", "Data center site selection", "Commercial real estate investment sales", "1031 exchange and creative real estate structuring" ],
  "legalName" : "Roesinger LLC",
  "logo" : "https://www.roesingercre.com/hubfs/roesinger-logo.png",
  "name" : "Roesinger Commercial Real Estate",
  "sameAs" : [ "https://www.linkedin.com/company/roesinger" ],
  "telephone" : "+1-512-949-1418",
  "url" : "https://www.roesingercre.com"
}
```

```json
{
  "@context" : "https://schema.org",
  "@type" : "Article",
  "about" : [ "Cap rate", "Net operating income", "Commercial property valuation", "Debt service coverage ratio" ],
  "author" : {
    "@id" : "https://www.roesingercre.com/#zach",
    "@type" : "Person",
    "jobTitle" : "Designated Broker",
    "name" : "Zach Roesinger",
    "sameAs" : [ "https://www.linkedin.com/in/zachroesinger", "https://x.com/LandmanZachATX" ],
    "url" : "https://www.roesingercre.com/resources"
  },
  "dateModified" : "2026-10-12",
  "datePublished" : "2026-10-12",
  "description" : "How cap rate, NOI, price per square foot, DSCR, and debt yield set the value of a commercial building, worked on a 50,000 SF South Austin flex-industrial example.",
  "headline" : "Cap rates and what your commercial building is worth",
  "publisher" : {
    "@id" : "https://www.roesingercre.com/#organization",
    "@type" : "Organization",
    "legalName" : "Roesinger LLC",
    "name" : "Roesinger Commercial Real Estate",
    "url" : "https://www.roesingercre.com"
  },
  "url" : "https://www.roesingercre.com/resources/cap-rate-commercial-property-value"
}
```

```json
{
  "@context" : "https://schema.org",
  "@type" : "BreadcrumbList",
  "itemListElement" : [ {
    "@type" : "ListItem",
    "item" : "https://www.roesingercre.com/",
    "name" : "Home",
    "position" : 1
  }, {
    "@type" : "ListItem",
    "item" : "https://www.roesingercre.com/resources",
    "name" : "Resources",
    "position" : 2
  }, {
    "@type" : "ListItem",
    "name" : "Cap rates and what your building is worth",
    "position" : 3
  } ]
}
```

```json
{
  "@context" : "https://schema.org",
  "@type" : "FAQPage",
  "mainEntity" : [ {
    "@type" : "Question",
    "acceptedAnswer" : {
      "@type" : "Answer",
      "text" : "The capitalization rate is net operating income divided by price or value. It is the unlevered first-year yield a buyer receives."
    },
    "name" : "What is a cap rate?"
  }, {
    "@type" : "Question",
    "acceptedAnswer" : {
      "@type" : "Answer",
      "text" : "For a buyer, a higher cap rate means more income per dollar paid but usually more risk. For a seller, a lower cap rate means a higher price."
    },
    "name" : "Is a higher cap rate better?"
  }, {
    "@type" : "Question",
    "acceptedAnswer" : {
      "@type" : "Answer",
      "text" : "Start with a broker opinion of value built on your rent roll, operating statements, and recent comparable sales. A broker opinion of value is not an appraisal."
    },
    "name" : "How do I find out what my building is worth?"
  } ]
}
```