Baron Realty - Brokers in Montreal and Toronto - Commercial and multi-familial

The NOI (or net Operating income) is what the buyers use to determine the maximum price they would pay for an apartment building. The higher the NOI, the higher the price, as per formula (GROSS INCOME (rent and ancillary) – ALL EXPENSES = NET OPERATING INCOME). It is basically the cash in the owner’s pocket at the end of the day. NOI is “normalized” by buyers, especially the sophisticated ones, therefore private-ownership savings may not be applicable to boost NOI (i.e. an owner who takes care of its own janitorial will not have that expense removed from the calculation of NOI by any purchaser, rather this expense will be included at market rates or, at the buyers’ standard operating expense rate in the case of sophisticated buyers).

In today’s market, what are some of the expenses that could seriously hurt NOI?

Building Insurance

We have seen this go up quite a bit in the last year or so, mostly because of the replacement cost which is part of any standard insurance (should building need to be reconstructed, and founded in the reality that construction costs have risen substantially over the last 5 years). Shopping around ahead of your policy renewal is key. Here are some numbers for perspective: A client of ours was able to reduce the insurance bill from $18K to approximately $10K per annum ahead of renewal, by switching insurance companies. Total value-add: $160,000 increase in asset value! There are still insurance companies out there that will surprise with a much lower rate, and when it comes to selling or refinancing, a few thousand dollars in expenses will make a huge difference in returns/loan available.

Ancillary revenue miss

Many times an owner does not maximize the potential for additional revenues such as parking, storage, and others. We had a client who did not have parking agreements with the tenants and was charging the same amount for indoor as for outdoor parking, losing $30/spot per month in potential revenue. Based on our calculation for the NOI impact, this translated as an approximate $600,000 in building value! This was great news for the buyer, but what’s surprising is that the ownership group did not even realize the impact was going to be “significant” on what they considered a minor variance.

Retail revenue miss or not actualized

Having a retail component in an apartment building completely changes the underwriting of the asset. Key differentiator is the inability to obtain a CMHC insured loan; however, even leaving this aspect aside, not actualizing retail revenue can render the building unsellable (or sellable only at a significant discount). Even if you have “enough” revenue from the apartments, do not keep the retail empty if you are planning to sell or refinance in the next 12 months.

High expenses from old equipment

You may be on the fence regarding spending thousands of dollars on a new furnace, but how much asset-value are you losing by keeping your existing one? As the energy costs seem to approach infinity, your NOI will reflect heat loss from an inefficient furnace, old windows, and improper roof. A hard winter will have a significant impact for the asset value the following year as buyers typically review expenses for the last 6-12 months in their underwriting.

A market underwriting of your building can help identify missed revenue sources and other NOI killers.

Before Accepting an Offer

  • Ask about the buyer’s track record of closing transactions
  • Request to see Proof of Funds for down-payment (assume 30-40% of price)
  • Re-evaluate conditions and delays
  • Find out if the buyer has to raise money to make the deal happen
  • Clarify if the buyer can renege on the deal without consequence to them after your selling power was “on hold” during their conditional period
  • Know that if your offer falls-thru this will raise a question mark in the mind of other buyers and potentially impact the sell-ability of the asset.

We only work with proven buyers, who generally can put forward offers that are not conditional on financing.

Baron Realty specializes in matching buyers and sellers of apartment buildings. Ramona works in partnership with Mikael Kurkdjian and a team of real estate professionals to bring the best boutique-brokerage services to the apartment transactional space in Ontario and Quebec.

Work With Our Team of Experienced Brokers. Contact Us Now!



Baron Realty / Immobilier Baron
400 – 6500 Transcanadienne
Pointe-Claire, Québec H9R 0A5
Telephone: 514 932 9000


Baron Realty, Brokerage
303-225 Duncan Mill Road
Toronto, Ontario M3B 3K9
Telephone: 416 301 3931

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