Cap Rates And NOI: Understanding The Real Value Equation

In last month’s Market Monitor, I described the major factors that owners should consider when evaluating whether or not they are a real seller (Personal Issues, Increased Competition, Capital Gains Tax, and Cap Rates/Ability to Finance). In this same light, I think it is important to review the formula or equation that one uses to arrive at Net Operating Income (NOI) because it is as variable and important as the Cap Rate when calculating value. Many of the smaller self storage operators have drastically different operating expense structures than the larger national operators and therefore there is a larger gap in what some buyers and sellers consider an appropriate net operating income when valuing a property.