What Are Leases in Commercial Real Estate?

Commercial property financing options include traditional loans, SBA loans, and bridge financing. Prepare a strong business plan and credit profile to secure favorable terms.

Most brokers will hand you a 30-page Offering Memorandum, tell you the cap rate is great, and wait for you to sign. That's not how I operate. In this video, I take off the broker hat and put on the investor hat — breaking down Woodrow Court Apartments, a 16-unit asset in Norfolk, Virginia listed at $3,375,000. I walk through the actual P&L, the hidden expense traps in a 1918 build, the rent-to-market gap, and why the Naval Station Norfolk "moat" makes this one of the most defensible 1031 exchange plays in Hampton Roads right now. [VIDEO EMBED] The Asset: Why Uniformity Is Your Best Friend Woodrow Court is one four-story brick building built in 1918 — 16 units, all two-bedroom/two-bathroom, 1,412 square feet each. 22,592 rentable square feet. 32,793 gross square feet. 0.33-acre lot. Here's why uniformity matters: when every unit is the same layout, your maintenance tech knows exactly what parts to keep in the van. Your leasing agent pitches the same floor plan every time. You're not managing a Frankenstein building with 10 different layouts — you're running a repeatable system. At $210,938 per unit and roughly $149 per square foot, you cannot build a brick-and-mortar 16-unit from scratch for that today. You're buying replacement cost at a discount in a land-constrained coastal market. Key asset details: Address: Woodrow Court Apartments, Norfolk, Virginia Year built: 1918 (four-story brick) Units: 16 — all 2BR/2BA Rentable SF: 22,592 Lot size: 0.33 acres (tight footprint = low landscaping cost) Price: $3,375,000 Price per unit: $210,938 Price per SF: $149 The Income: The "Loss to Lease" Opportunity Current average rent as of March 2026: $1,611/month. Gross annualized rent: $309,216. Market rent projection: $1,700/unit. Gross potential rent at market: $326,400. That $27,200/month gap is Loss to Lease — the owner got comfortable, didn't push rents, and kept good tenants at below-market rates. As an investor, that comfort is your opportunity. But here's the truth most brokers won't tell you: don't bank on $1,700 on Day 1. You earn it through management — tightening operations, addressing the 6.0% economic vacancy, and eliminating bad debt. If you don't account for physical vacancy and collection loss, your spreadsheet is a fairy tale. The Expense Reality: Where Deals Go to Die Current expense ratio: 27.2% — total expenses of $80,437. Pro forma adjusted expenses: $99,456 — a 31.6% ratio. Why the jump? Because when you buy a property, the taxes reset. Current real estate taxes: $25,797. Pro forma projection: $40,500. If your broker isn't showing you a tax reset in their OM, find a new broker. Management fee bumped from 6.0% to 7.0% — because in this market you want professional management that keeps repairs at $12,000 annualized through preventative care, not emergency fixes that blow your budget. The 1918 Factor: Walk a building this old and look at the systems, not the paint. Check the plumbing stacks. Confirm the electrical has been updated, not just pigtailed. Budget a system audit in Year 1 — the OM's $4,000 operating reserve is a standard accounting number, not a real maintenance budget. The Norfolk "Naval Moat": Why Location De-Risks This Deal People ask me why Norfolk. Simple: the U.S. Navy. Naval Station Norfolk is the largest naval base in the world — 34,000+ military and civilian personnel. Norfolk Naval Shipyard adds another 10,000. When you own apartments within 10 minutes of the world's largest naval base, you're not just buying real estate — you're buying a piece of the U.S. defense budget. Market fundamentals within 1-mile radius: Median household income: $79,968 Unemployment rate: 3.0% Total households in 5-mile radius: 104,830 Renter-occupied units in 5-mile radius: 58,643 (more than half) Major employers: Naval Station Norfolk, Norfolk Naval Shipyard, Sentara Healthcare, Old Dominion University Nearby amenities: IKEA, Simon Premium Outlets, Norfolk International Airport (all within 10 min) This isn't a speculative market. It's a bread-and-butter stable income market with structural demand from military, healthcare, and university employment. The Returns: What You Actually Make At 30% down ($1,012,500) and 5.90% interest: Metric Current Pro Forma Gross Potential Rent $309,216 $326,400 Net Operating Income $215,226 — Cap Rate 6.38% — Debt Service $168,154 — Cash Flow After Debt $47,072 — Cash-on-Cash Return 4.65% — Principal Reduction (Year 1) $29,557 — Total Return (cash flow + equity) 7.57% — Yes, you can get 5% in a high-yield savings account. But your savings account doesn't give you $29,557 in annual principal reduction. It doesn't give you the tax depreciation on a $3.3M asset. And it doesn't appreciate when you push rents from $1.14/SF to $1.30/SF across 22,592 rentable feet. The Rent Comp Gap: The Real Value-Add Play Current rent: $1.14/SF Neighborhood comparables: Museum Apartments: $1.81/SF Riverview Lofts: $1.98/SF The James: $2.08/SF Market average: $1.89/SF You don't need a full luxury renovation to close that gap. Clean up the common areas, improve the lighting, tighten management — getting from $1.14 to $1.25/SF is a conservative target. Every penny you add to that per-square-foot number across 22,592 feet drops straight to NOI and compounds your valuation at a 6.38% cap. The Sales Comps: Why the Pricing Is Defensive 625 W Princess Anne Road: sold at $237,500/unit The Botetourt: $231,250/unit Comp average: $143/SF Woodrow Court: $210,938/unit and $149/SF — nearly $26,000 per door cheaper than the closest comparable sale, with units that are 1,412 SF vs. the 900–1,000 SF two-bedrooms most Norfolk competitors offer. More space for a similar rent = stickiness. When a tenant has 1,400 square feet and two full bathrooms, they don't leave to save $50/month at a cramped complex down the street. The Bottom Line Is Woodrow Court perfect? No. The 1918 build requires eyes-open due diligence. The loss-to-lease won't close overnight. The tax reset will hit your Year 1 numbers. But as a stable, brick multifamily asset in a Navy-anchored coastal market with 58,000+ renter-occupied households within 5 miles? This is a textbook buy-and-hold — and one of the most defensible 1031 exchange options in Hampton Roads right now. If you want the full rent roll, the trailing 12-month P&L, or to schedule a walkthrough, contact me directly. Frequently Asked Questions What is the cap rate on Woodrow Court Apartments in Norfolk, VA? The current cap rate on Woodrow Court is 6.38%, based on a Net Operating Income of $215,226 and a list price of $3,375,000. Is Norfolk, Virginia a good market for multifamily investing? Yes — Norfolk is anchored by Naval Station Norfolk, the largest naval base in the world, employing over 34,000 personnel. Combined with Sentara Healthcare and Old Dominion University, the market has structural renter demand, a 3.0% unemployment rate, and over 58,000 renter-occupied households within 5 miles. What is Loss to Lease in multifamily real estate? Loss to Lease is the gap between what a property currently collects in rent and what the market will support. At Woodrow Court, current average rent is $1,611/month vs. a market rate of $1,700/month — representing a $27,200/year income opportunity for a new owner who tightens management. What should I look for when buying a 1918 apartment building? Focus on the systems, not the cosmetics. Inspect plumbing stacks, electrical panels (look for pigtailing vs. full updates), roof condition, and windows. Budget a system audit in Year 1 and treat the OM's operating reserve as a floor, not a ceiling. What is a good cash-on-cash return on a multifamily investment in Virginia? In today's interest rate environment (5.5–6.5% financing), a 4–6% cash-on-cash return is reasonable for stabilized Virginia multifamily assets. Woodrow Court produces a 4.65% cash-on-cash return at 30% down, with a 7.57% total return when principal paydown is included. What is a 1031 exchange and why is this property a good fit? A 1031 exchange allows real estate investors to defer capital gains taxes by reinvesting proceeds from a sold property into a like-kind replacement property. Woodrow Court is well-suited for 1031 exchange buyers because of its stable NOI ($215,226), Navy-driven demand moat, and defensive pricing vs. recent comparable sales.