Before you analyze a spreadsheet or run a model, ask yourself: How do I value my own capital?
In commercial real estate (CRE), a 2x equity multiple over five years might seem appealing—but what if the entire return is dependent on the exit, and you need more cash flow or liquidity during the hold period? In some cases, a lower overall return with quicker distributions may better align with your long-term strategy and risk tolerance.
At Alakai Capital, we’ve reviewed thousands of deals and acquired more than 70 commercial assets across industrial and retail properties. We know that the best investment decisions come from clarity;not just about the property, but about your goals as the investor.
This guide walks through the foundational metrics and strategic trade-offs behind successful CRE investing.
Start With Your Personal Discount Rate and Liquidity Needs
Before evaluating a deal, understand your own capital expectations.
Ask yourself:
- What return justifies locking up my money for 3–5+ years?
- How much of my capital am I comfortable tying up?
- Do I need near-term income, or am I investing for appreciation?
This is your personal discount rate—the minimum return required based on your opportunity cost. For some, that rate is 8%. For others, it might be 15% or higher, especially if they’re comparing against private equity, tech, or other alternatives.
If you can’t confidently define your own discount rate, it’s difficult to know what a “good deal” really is.
Three Core Metrics Every Investor Should Understand
Let’s break down the three return metrics most commonly used in CRE—and how to apply them.
1) Cash-on-Cash Return (or Return on Invested Capital)
- What it is: Annual cash flow divided by the initial investment
- When is it used: Usually during the hold period of the investment, to measure annual cash flow rather than the cumulative return
- Why it matters: Shows actual dollars returned to you each year
- Best for: Income-focused investors, retirees, or those who need quarterly or monthly distributions
Example: A $500,000 investment with an 8% cash-on-cash return = $40,000/year in income.
2) Equity Multiple
- What it is: Total dollars returned divided by dollars invested
- When is it used: After the completion of the investment as a summation of the total deal
- Why it matters: Shows overall capital growth across the life of the deal
- Best for: Comparing full-cycle return potential
Example: A 2.0x multiple means you’ll double your money over the hold period on both the cashflow returns and the return on the final disposition of the asset.
3) Internal Rate of Return (IRR)
- What it is: Annualized rate of return over the life of the investment, accounting for the time value of money
- When it is used: To summarize the total deal return as a percent of income on an annualized basis as a barometer against other types of investments and your personal discount rate outlined above (ideally this is higher than your personal discount rate)
- Why it matters: Useful for comparing deals with different timelines
- Best for: Weighing speed vs. total return
Note: IRR can be manipulated with early distributions or speculative timelines. Always review cash flow timing.
Alakai Insight: In a past evaluation, we passed on a 34% IRR speculative development in favor of a 28% IRR build-to-suit with a national dental tenant. Why? Because the latter offered stronger tenant security, a fixed timeline, and a prototype building—far reducing the risk of the deal. Thus, although the return was higher on the first option, the risk adjusted return was justifiably higher on the second option..
Real Estate Metrics Are Only Half the Picture
Return metrics are necessary, but not sufficient.
The real work starts when you evaluate deal structure, tenants, and business plan execution.
Ask:
- Is this a ground-up development or value-add redevelopment?
- Is the lease pre-signed or are we speculating on demand?
- What is the creditworthiness of the tenant(s)?
- Is there a clear path to exit?
| Strategy | Hold Period | Risk Profile | Typical Return Focus |
| Build-to-Suit Retail Development | 1–2 years | High, but limited in scope | Equity Multiple + IRR |
| Value-Add Industrial Investment | 3–7 years | Moderate to low | Cash on cash + equity multiple |
| Value-Add Retail Investment | 2–5 years | Moderate to low | Cash on cash + equity multiple |
| Speculative Development | 1-5 years | High | Equity multiple + IRR |
| Stabilized Investment | 5+ years | Low | Cash on Cash |
Alakai Case Study: In 2024, our broker relationships revealed an industrial park that had been in the same family for generations. After years of mismanagement, the owners were ready to “throw in the towel.” This off-market opportunity allowed acquisition at 30% below market value with in place rents at about half market. Alakai acquired the site and quickly repositioned the asset from a C-grade to a solid B industrial park through targeted, high value/low cost improvements. This allowed for a clear path to increasing rents 30%-40%—unlocking long-term value for its investors.
Evaluate the Entire Business Plan —
Not Just the Property
A common mistake is evaluating a deal by its cap rate or tenant roster alone. But the business plan is what drives outcomes. Here are the four layers of a solid business plan and questions to ask yourself to help refine your thinking on each layer:
1) Market Position
Is this property well-located relative to competitors? Can it command stronger rents after improvements? Will it attract higher quality tenants with stronger guarantees after its renovation?
2) Capital Plan
Are improvements cosmetic (paint, signage) or structural (HVAC, roof)? Is there a clear ROI on the capex? Are there any barriers that may prevent the improvements or add significant costs (permits, impact fees, historic designations, etc.)
3) Tenant Strategy
What’s the strategy for attracting or retaining tenants? Are leases long-term, or do they expire soon after acquisition? Are the tenants currently at the property the highest and best that it can attract?
4) Exit Path
Who are the likely buyers in 3–7 years? Institutional investors, owner-operators, or another private group? Depending on that buyer segment, how can you best position the property to be the most attractive based on their needs?
Each of these variables matter more than the initial spreadsheet. A strong business plan can de-risk the deal even when the market is uncertain and provide a clear roadmap to success.
The Value of a Disciplined, Repeatable Due Diligence Framework
Experienced firms approach due diligence as a layered, systematic process. This isn’t just about checking boxes, it’s about reducing risk and validating upside before capital goes in.
A sample diligence framework includes:
- Phase 1: Initial Screening – Market review, high-level financials, broker/seller motivation
- Phase 2: Deep Dive – Lease audits, physical walkthroughs, rent rolls, tenant credit reviews, and capex plan
- Phase 3: Risk Audit – Environmental, zoning, survey, title, and financing structure stress tests
- Phase 4: Investment Committee Review – Modeling multiple scenarios, validating exit cap assumptions, and confirming alignment with investor goals
While no two deals are the same, a structured process will provide consistency to how you make decisions, and consistency drives results.
The Alakai Capital Investment Philosophy
While every real estate firm highlights metrics and upside, true differentiation lies in execution. Our edge at Alakai Capital stems from how our deals are sourced, evaluated, and executed. Here’s a deeper dive into the philosophy we operate by.
It’s built on four key pillars:
1) Data Driven Processes
We have created processes that ensure we do not miss anything when it comes to underwriting and understanding an investment. They are both to be sure we measure every risk as well as consider every potential opportunity. These processes allow our team to focus their energy on the high level, creative thought processes that lead to opportunistic results.
2) Relationship-Driven Intelligence:
Our deep relationships with our brokers, tenants, lenders, and consultants provide another layer of “eyes” on our investments as both parties have a long term mindset, thus mutual success as our foundation.
From the CEO, Nick Jones:
“We have consultants that go above and beyond for us, often digging deeper, thinking more creatively, doing the extra work, to ensure our success because they know that we’re going to be around for the next 20 yrs, and our success is their success. Our integrity and loyalty has earned us this privilege, which provides for another layer of analysis/review by each professional in the area of their expertise.”
3) Tenant-Focused Strategy:
We cater to our tenants’ needs—from 15–20 year leases on build-to-suit projects to tenant-led designs for retail developments.
4) Strategic Value Creation:
We upgrade underperforming assets with capital plans that drive rent growth and tenant quality. Every dollar spent has a reason, and every decision is backed by a business plan of value creation.
5) Aligned Incentives:
Our principals co-invest in every deal. That means we’re underwriting with our own capital on the line.
Our philosophy isn’t about chasing what’s hot—it’s about doing what works. Over and over again.
Ready to Go Deeper?
If you’re exploring commercial real estate as a way to grow and protect your wealth, start with education. If it is not something you can fully commit the time and energy to make smart, data driven decisions, it may make more sense to work with an investment partner who evaluates every opportunity with discipline, clarity, and conviction.
Check out our current investment offerings or contact our team to explore if our strategy aligns with your goals.
About Alakai Capital
Evaluating commercial real estate investments requires more than spreadsheet analysis—it demands market intelligence, strategic vision, and disciplined execution. The Alakai Capital framework has guided us through 70+ successful investments and developments totaling over $250 million.
From our first value-add retail development in 2015 to surpassing 850,000 square feet under management, our analytical heavy, relationship-driven approach has consistently delivered strong, risk-adjusted returns.
Nick Jones is the founder and CEO of Alakai Capital, with over 20 years of experience in commercial real estate. He has overseen the development or redevelopment of over 70 commercial investments creating over $100 million of value across industrial, retail, office, and medical office properties.