Have a deal?Just plug it in.
Back-of-the-napkin commercial real estate underwriting, in seconds.
5 Second Model · back-of-the-napkin underwriting
Blended Cap Rate
Different tenants deserve different cap rates. Price each one, then add them up.
A national on a fifteen-year lease and a local on a two-year deal do not deserve the same cap rate, so pricing a multi-tenant property at a single blended rate leaves money on the table. This calculator values each income stream separately and adds them up, then shows the true blended cap that results. It also shows the shortcut most people use — the income-weighted average of the cap rates — and how much value that shortcut costs you.
Statement of assumptions & returnsAll figures USD · annual unless noted · click any number to type it exactly
Credit and term drive the cap. A national on a 15-year lease is not a nail salon on a two-year deal.
Total value / Blended cap rate
--
Valued tenant by tenant
Value contributed by each tenant
Why the shortcut is wrong
| Total net operating income | -- |
| Value, priced tenant by tenant | -- |
| True blended cap rate | -- |
| Income-weighted average of the cap rates | -- |
| Value if you used that average instead | -- |
| Difference | -- |
What you actually keep
| Effective cap on net proceeds | -- |
| Kept per dollar of income | -- |
Gross value is not what lands in your account. Between the broker, the lawyers, the title company and the recording office, three to five percent of the number above is gone before you see it — and that is before any loan payoff. Set the fees to zero if you are pricing an acquisition rather than a sale; the tenant-by-tenant value above is unchanged either way.
The blended cap is not the average of the caps. Averaging the rates weights them by income; valuing each stream separately weights them by value, and low-cap tenants carry more value per dollar of rent. The true blend always comes in below the income-weighted average, so the shortcut consistently understates what the property is worth. On a two-tenant deal the gap is small. On a strip center with a 5-cap national next to a string of 8-cap locals, it is real money.
A caution on stacking caps: pricing each tenant separately is how you build a value, not how the market always pays. A buyer purchases one property with one loan and one management burden, and will often apply a single blended rate with a premium or discount for the mix. Use this to understand where value comes from and to defend a number, not to assume a buyer will agree with every line.
Common questions
- Is the blended cap rate just the average of the cap rates?
- No, and the difference is real money. Averaging the rates weights them by income; valuing each stream separately weights them by value, and low-cap tenants carry more value per dollar of rent. The true blend always comes in below the income-weighted average.
- Should I always stack cap rates by tenant?
- It is how you build and defend a value, not how every buyer pays. A buyer purchases one property with one loan and one management burden, and will often apply a single rate with a premium or discount for the mix.
- What drives a tenant cap rate?
- Credit and term, mostly. An investment-grade tenant with twelve years remaining prices far tighter than an unrated local with two years left in the same building.