Net Operating Income (NOI)
A property's income after operating expenses but before debt service, capital expenditures, income taxes, and depreciation, the foundation of every commercial real estate credit measure.
NOI = Effective Gross Income - Operating Expenses
NOI is where commercial real estate analysis starts. Build effective gross income from the rent roll (contract rent, less vacancy and credit loss, plus other income), subtract the real operating expenses to run the property (taxes, insurance, management, repairs, utilities, reserves), and what remains is NOI. Crucially, NOI is struck before the loan: it excludes debt service, capital expenditures, depreciation, and income tax, so it measures the property, not the deal.
Almost everything downstream is built on NOI. Divide it by total debt service for DSCR, by the loan amount for debt yield, and by a market cap rate to estimate value (which then drives LTV). A clean, defensible NOI is therefore the highest-leverage number in a CRE credit; small games with expense add-backs or reserves ripple through all three ratios at once.
Turn Definitions Into Decisions
Shockproof teaches these measures the way credit teams actually use them, on real files with a defensible decision at the end.