How NYC Commercial Buildings Are Valued (Cap Rate, GRM & More)

The Capitalization Rate (Cap Rate)

Cap rate is the most widely used valuation method for income-producing real estate. The formula is simple: Net Operating Income divided by Property Value. If a building has $200,000 in NOI and trades at a 5% cap rate, its value is $4 million.

NYC cap rates vary significantly by borough, asset class, and rent regulation status. In 2025, well-located Manhattan multifamily buildings trade at 3.5-4.5% cap rates. Outer borough stabilized buildings often trade at 5-7%. Higher cap rates mean lower prices relative to income.

Gross Rent Multiplier (GRM)

GRM is a simpler metric used for quick comparisons: Purchase Price divided by Gross Annual Rent. A building selling for $3M with $250,000 in gross rent has a GRM of 12.

GRM ignores expenses, so it is best used as a screening tool rather than a definitive valuation. Two buildings with the same GRM can have very different net operating incomes if their expense ratios differ.

Price Per Unit and Price Per Square Foot

Buyers use price per unit and price per square foot as quick sanity checks against market comparables. In Brooklyn, small multifamily buildings often trade at $200,000-350,000 per unit. In Manhattan, that range pushes well above $500,000 per unit for well-located properties.

These metrics are more useful for comparing similar buildings in the same neighborhood than for absolute valuation.

What Actually Drives Your Building's Value

Beyond the formulas, buyers adjust for rent regulation exposure, physical condition, quality of tenant mix, proximity to subway, lot size and development potential, and the reliability of your financial records.

A building with clean financials, well-maintained systems, and cooperative tenants commands a premium over an identical building with sloppy books and deferred maintenance — even if the income is identical on paper.