You are a commercial mortgage broker or a commercial mortgage banker.  You are seeking a new commercial mortgage loan on an owner-used commercial property.  The owner's tool company occupies the commercial property.   You need to prepare a pro forma operating statement in order to apply for a commercial mortgage loan, but you don't know what lease rate to use.

No problem.  Just work backwards from the commercial property's value.  If you know the commercial property is worth $600,000, just assume a cap rate of 9%.  Nine percent of $600,000 is $54,000 per year in net income, after operating expenses.

If we assume the property is leased on a triple net basis, then the only operating expenses are replacement reserves (say, 3% of effective gross income) and management (say, 4% of effective gross income).  We therefore multiply the $54,000 in net operating income by 107% (3% plus 4%) to arrive at the effective gross income of $57,780.

The effective gross income is just the gross rental income less 5% for vacancy and collection losses.  Finally, simply take $57,780 and divide it by 95% to get the triple net annual gross rental income of the commercial property!

You can learn the entire practice of commercial mortgage finance for just $499 on C-Loans.