Same Cap Rate, $1.85M Price Gap: The NOI Game in Brevard Industrial

Four brokers looked at the same industrial building last month. All four quoted a 6.5% cap rate. The prices they came back with ranged from $6.77 million to $8.62 million. Same property. Same cap rate. Same week. The spread was $1.85 million, which is roughly the cost of a nice waterfront house in Satellite Beach or, if you prefer, the entire margin on a mid-sized flex deal.

This is not a hypothetical. This is what happens when buyers focus on the cap rate and ignore the number that actually matters. The Brevard County industrial NOI game is being played every day in Melbourne, Palm Bay, and Titusville, and most buyers do not realize they are losing until the appraisal comes back short.

The Math Behind the Madness

Here is how four brokers arrived at four wildly different prices using the exact same cap rate. The property has in-place monthly rents of $40,000, which annualizes to $480,000.

-Broker A took that gross in-place income and divided by 6.5%. Price: $7.38 million. Simple. Clean. Defensible if you believe every tenant pays every month and the building never needs a roof.

-Broker B applied a vacancy factor and management reserves to that same $480,000. After backing out 5% vacancy and reasonable operating reserves, the effective NOI dropped to $440,000. At a 6.5% cap, that is $6.77 million. This is the number a lender's underwriter will use. This is what the property actually nets when you account for the fact that commercial real estate exists in the real world.

-Broker C decided to project forward. Instead of using what the building earns today, Broker C used projected income for the next 12 months: $520,000. At the same 6.5% cap, that is $8.0 million.

-Broker D liked that approach so much, they projected even harder. Their forward NOI was $560,000, yielding an asking price of $8.62 million.

The gap between Broker B's conservative number and Broker D's aggressive projection is $1.85 million. On the same building. Using the same cap rate. If you think the cap rate is the number that matters, you are negotiating with the wrong variable.

Why Each Methodology Exists and Who It Favors

Broker A's gross in-place approach works for a stabilized asset with long-term tenants, low vacancy, and no deferred maintenance. It is simple and defensible. It also ignores reality. Not every tenant pays on time. Some do not pay at all. Properties need reserves for capital expenditures. Pretending otherwise is optimism dressed as math.

Broker B's approach, in-place income minus vacancy and reserves, is the most honest picture of what a property actually produces. It is conservative but clean. More importantly, it is what the lender's appraiser will use when they underwrite your loan. If you are financing the purchase, this is the only number that matters at the finish line.

Brokers C and D are using forward projections. This methodology is legitimate when the projected income is backed by signed leases or contractual rent escalations. It is dangerous when the projection is speculation dressed up as underwriting. On the Space Coast right now, with industrial demand driven by aerospace expansion, forward projections are being abused. Sellers are pricing in rent growth that has not been signed, negotiated, or in some cases even discussed with existing tenants.

The Brevard County Industrial Problem

This matters especially right now in Brevard's industrial and flex markets. L3Harris, Blue Origin, and their supply chain vendors have driven industrial rents up significantly over the past three years. That is real. What is also real is that sellers and their brokers are running forward projections that assume continued rent growth at the same pace. They are building asking prices on income that does not exist yet.

A buyer who accepts the forward NOI without verifying signed leases or letters of intent is paying for speculation. The offering memorandum looks professional. The cap rate looks market-rate. The price looks justified. Then the appraisal comes back.

The lender does not care what the broker projected. The lender's appraiser will underwrite in-place income minus a market vacancy factor. If the buyer is paying a price built on Broker D's $560,000 NOI and the lender is underwriting Broker B's $440,000 NOI, the loan amount comes up short. The deal falls apart, or the buyer has to cover the gap with additional equity they did not budget for. I have watched this happen three times in the past six months on Melbourne industrial deals. It is not a bug in the system. It is a feature that sellers are using.

RCRE Take

Every buyer should be asking the same five questions before they trust an asking price. First: what is the actual current rent roll, and what is the lease expiration schedule? Second: which NOI figure is the asking price based on, in-place or projected? Third: if projected, are those leases signed, or is this speculation? If the answer is anything other than signed leases with specific rent amounts and terms, you are being asked to pay for hope.

Fourth: run your own NOI. Take in-place rents, subtract 5% to 8% for vacancy depending on the submarket, and subtract $0.50 to $1.00 per square foot in reserves for capital expenditures. That is your floor. That is what a lender will see. Fifth: calculate the gap between your floor and the asking price at the same cap rate. That gap is your negotiating room. It is not a misunderstanding. It is the seller's margin built on projections you have not verified.

The cap rate is not the argument. The NOI is the entire argument. Two brokers can quote you the same cap rate and be $1.85 million apart on the same building. This happens constantly in Brevard County's industrial markets right now, where properties are trading fast and buyers are accepting offering memorandum figures without stress-testing the income assumptions behind them. Do not be that buyer. The lender will not bail you out at the appraisal.

Submarket Context

The Melbourne and Palm Bay industrial corridors are the epicenter of this problem. Properties within 15 minutes of L3Harris and the aerospace supply chain are trading at premium prices, often justified by forward rent projections. The Titusville market is seeing similar dynamics as the Exploration Park area matures. If you are evaluating an industrial or flex acquisition in any of these submarkets, the NOI verification process is not optional. Review current listings with skepticism and verify every income assumption before you submit an LOI.

Here is the hack, stated plainly: buy from Broker B and sell using Broker D. That is the game. Now you know how it is played.

If you are buying or selling industrial property in Brevard County, contact us before you trust a number on an offering memorandum. We will show you what the building actually earns and what a lender will actually underwrite. Call 321-514-0876 or reach out through our contact page. The cap rate is the sideshow. The NOI is the whole act.

Sources

• RCRE Services: Investment property analysis and disposition services for Brevard County owners

• RCRE Resources: Market data and educational materials for Space Coast commercial real estate