To claim that a “building’s capacity enhances the value” is to make an aphoristic statement. If the term ca­pacity refers to the amount of square feet available to lease, obviously the more square feet you have to lease the more income you will collect and the more valuable the prop­erty.

Before you get to financial multipliers, however, you have to determine the property’s most impor­tant financial number: net operating income (NOI). NOI starts with the actual income. That means a careful due diligence examination of comparable rents and any other sources of revenue. Gross leases have to be compared to gross leases. Triple net leases or modified versions have to be compared to similar ones. Next, back in whatever operating expenses are applicable and subtract from the income. Now find any comparable sales and what their capitalization rates were at the time of sale. Remember square foot and gross rent multiplier comparisons are validators not determinators.

A single tenant property sale being financed by the owner has a very strong financial im­pact on the sales price. The financial strength of the lessee, term of the lease, and equity from the buyer all have bearing on an appropriate capitalization rate and subsequent price. The location, capital improvements and lessee flexibility also play an important role in determining the capitalization rate and ultimate sales price.

NetGain’s NIPI™ is currently recommending a 7% capitalization rate. The capitalization rate recommendation should be used as a guide. Without an extensive due diligence ex­amination, NetGain can’t tell you what the appropriate adjustments to the recommenda­tion should be.