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If you’re a corporate exec planning to purchase a commercial property—especially a one-of-a-kind facility—chances are you’ve faced some version of this question: “What should we offer?”
It sounds simple, but it’s not. Especially when the building isn’t just another cookie-cutter flex warehouse or standard office box in a sea of comps.
With more CFOs rethinking lease vs. buy strategies—especially as lease accounting changes have shifted the math—it’s a challenge that’s becoming more common.
Fortunately, there’s a straightforward way to bring order to the chaos. The Triple-Play Evaluation, a 3-pronged approach that balances market comparisons, replacement costs, and income projections. When used together, this trio of methods provides a complete picture of value—and gives your team the confidence to make a smart, justifiable offer.
1. Comparables (Comps)
This is the most familiar and easiest to explain—what are similar buildings in the area selling for?
Think of it like buying a car: you check what others with the same make, model, and mileage are going for. But unlike cars, buildings don’t come off an assembly line. Even similar buildings often have very different site conditions, tenant improvements, or functional obsolescence. Comps are a great starting point, but they often need adjustment.
For example, if a similar property just sold for $10 million and yours is in a slightly better location but has less parking, you might adjust your target value to $9.5 million or $10.2 million, depending on those variables.
2. Replacement Cost
This method asks a simple question: “If we had to build this today, what would it cost?” Then you subtract depreciation for age and condition.
It’s a critical tool, especially when you’re looking at a specialized or older property where comps are scarce—or worse, misleading. This is particularly helpful if you’re in a market with few transactions or in a unique niche like data centers, labs, or manufacturing facilities.
Say the cost to rebuild is $20 million, but the current building is 10 years old and showing some wear. You adjust down for that—maybe by $2 million—and estimate a value of $18 million.
This method also gives insight into insurance needs, replacement planning, and investment comparison. But keep in mind: it doesn’t always reflect what someone would pay today.
3. Income Approach
If the building generates rental income (or could), this method puts a price on its earning potential. It starts with Net Operating Income (NOI)—that’s rent minus expenses like property tax, maintenance, insurance, and utilities. Then you divide the NOI by a capitalization rate (cap rate), which is based on market conditions and risk.
If the NOI is $1,000,000 and the market cap rate is 8%, the building would be valued at ($1M/.08) = $12.5 million.
This approach is especially useful for leased buildings, investment properties, or buildings with income potential post-sale. It’s also where finance and real estate meet—so it tends to hold the most weight with CFOs and lenders.
Putting It All Together
Each method has strengths and weaknesses. That’s why no single one tells the whole story. When you use all three approaches side-by-side, you can triangulate a supportable valuation—and avoid the trap of relying too heavily on any one figure.
This isn’t about splitting the difference. It’s about understanding the value from multiple perspectives. If all three point to roughly the same value, you’re in good shape. If they don’t, you now know why—and that clarity is power.
So the next time you’re staring at a unique commercial building and asking, “What should we offer?”—step back, use the three-pronged approach, and make your decision with confidence.
