Commercial Property

Commercial property is real estate used for business, such as retail, office, industrial and larger apartment buildings. Gross rent multiplier sees little use for most of it. Commercial leases vary widely in who pays expenses, so buyers and lenders value these properties on net operating income and cap rate instead.

For smaller apartment buildings, GRM still appears as a quick comparison, and brokers sometimes quote it next to the cap rate. For retail, office or industrial space, a GRM compares rents that may include expenses with rents that do not, which makes the number close to useless.

Commercial lenders underwrite on debt service coverage, which starts from net income. A commercial property with an attractive GRM but high expenses can fail a lender's coverage test. Use GRM, if at all, only within a single property type and lease structure.

Further reading: Commercial Property on Wikipedia.