Encyclopedia
Stabilized net operating income (NOI)
NOI at normal occupancy after lease-up.
For example: A buyer values a building on stabilized NOI. (Illustration only, not a real deal.)
This is a general industry term with no single official definition. Your lease or contract wording controls.
Example only, not a real client. Say you are buying a building that is partly empty after a renovation. The seller quotes the income once fully leased. You value it on today’s income plus the cost and time to reach that stabilized income, rather than paying for income that does not exist yet.
What I’d tell a friend
Do not pay today for income that is still a forecast. Price in the time, cost and risk of getting there.
Why it matters to you
It's the income the building should earn once it's fully leased. Paying for it before it exists means taking on the leasing risk the seller is handing you, so ask how long it will take and what it will cost to get there.
How to use it in your deal
Buyers should treat stabilized NOI as a projection and ask how it was built: which rents, which vacancy allowance, how long to lease up, what tenant inducements and leasing costs. Price in the time and cost to get there, including lost income during lease-up. Compare the stabilized figure with actual current NOI to see how much of the price depends on future work.
Sellers should support assumptions with recent leases nearby. Lenders often lend on current NOI and may add more once the property stabilizes. Appraisers may value both "as is" and "as stabilized". Owners should track progress against the plan, since slower lease-up hurts returns quickly. Ask the seller to show how long it took similar buildings to stabilize, and model a slower lease-up as a check. Ask what assumptions about rent and vacancy sit under the stabilized number.
Mistakes I see
Paying for stabilized value today. Ignoring lease-up costs. Using optimistic rents. Forgetting vacancy.
In BC and Vancouver
No statute defines it; it's an industry measure. Appraisal standards guide how appraisers present as-is and stabilized values.
Official sources: Canada Mortgage and Housing Corporation · BC Assessment appeal guide
What it means
Stabilized net operating income is the income a property is expected to earn once it is leased at normal market occupancy and rents, after any lease-up or repairs are complete.
Sellers, lenders and appraisers often use it to describe a building’s potential.
Using it carefully
Compare stabilized income with current income and ask what it will take to close the gap, such as leasing costs, incentives and capital work.
Lenders may lend on current income until the building stabilizes, which can mean a lower loan or more equity up front. Plan your financing around that, and keep a cushion for delays.
Questions to ask before you sign
- How was it calculated?
- What's actual NOI today?
- How long to stabilize?
- What will lease-up cost?
- What will my lender lend on?
Keep reading
Related terms: Net operating income (NOI), Lease-up
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.