In a typical first-round real estate case, two or three of eight candidates open with a generic profitability tree and treat occupancy as if it were profit. The interviewer is not grading your market-entry instincts yet. They are listening for whether you know that a building can be fuller and poorer at the same time once free rent, tenant improvements, and unreimbursed operating costs hit the cash statement.
The thesis is simple: real estate cases are scored on unit economics of the asset — NOI after concessions, rent per square foot, economic occupancy, and value via cap rate or development yield — not on a vanity fill rate. After this piece you should be able to build an NOI bridge, price an asset off a going-in cap, and decide lease-up versus rent growth the way a score sheet rewards.
What the interviewer is actually scoring
PE real-estate teams, MBB and Big Four RE practices, and plenty of generalist second rounds hand you an office tower, a multifamily asset, an industrial box, a retail center, or a REIT slide deck. If the client is a retailer choosing store locations, that is four-wall retail math, not a cap-rate case. Here the protagonist is the property.
| Order | What they listen for | Typical fail |
|---|---|---|
| 1 | In-place vs stabilized NOI (and whose definition) | Treating broker "stabilized" NOI as cash today |
| 2 | Economic occupancy after free rent and abatements | Celebrating physical occupancy alone |
| 3 | Rent PSF (or per unit / per key) times occupied area | Mixing list rent with effective rent |
| 4 | Opex and who pays it (gross vs NNN) | Ignoring unreimbursed costs and vacancy loss |
| 5 | TI, leasing commissions, and capex as cash | Calling them "not in NOI" and then forgetting them |
| 6 | Value = NOI / cap rate (or residual land / development yield) | Applying a core cap to a lease-up story |
I stop listening when someone says "occupancy is up, so the building is healthier" without asking what it cost to buy those tenants.
The metrics primary sources actually publish
Interviewers expect you to sound like someone who has read a rent roll, not a glossary. Anchor on public ranges, then treat case exhibits as law.
NOI. Net operating income is property revenue less operating expenses, before debt service and usually before capital items such as tenant improvements. Institutional private markets track it relentlessly: as of Q4 2025, the NCREIF Property Index covered 12,914 properties (~$906 billion) and reported trailing NOI growth still slightly negative at -0.16% for the quarter. Public REITs report NOI as a core operating measure; Nareit's Q4 2024 REIT Industry Tracker summary put industry NOI at $29.8 billion (up 5.5% year over year) with same-store NOI up 3.2%.
Cap rate. Cap rate = NOI / value (going-in). Price up, cap down. NCREIF's same Q4 2025 release shows appraisal-based cap rates on unsold index properties at about 4.57%, while properties that actually sold cleared closer to 5.71% — a useful reminder that transaction and appraisal caps are not the same number. If the case gives you a going-in or exit cap, use the case.
Occupancy. Physical occupancy is occupied square feet over rentable square feet. It is not NOI. Among listed equity REITs in Q4 2024, Nareit reported total occupancy near 93.3%, with retail ~97.0%, apartments ~95.7%, industrial ~95.0%, and office the soft sector at ~86.2%. A premier CBD landlord can sit between those poles: BXP's 2024 Form 10-K shows the in-service portfolio 87.5% occupied and 89.4% leased, with CBD assets higher (90.9% occupied / 92.8% leased). For residential context outside CRE indices, the Census Housing Vacancy Survey for Q4 2025 puts the U.S. rental vacancy rate at 7.2% (not statistically different from 6.9% a year earlier).
Rent per square foot. Office and industrial cases live in $/sf/year (or month). Multifamily is often $/unit/month; hotels are ADR and RevPAR. Always ask which unit the exhibit uses before you multiply.
Development yield. Stabilized NOI divided by total project cost (land, hard and soft costs, interest, lease-up vacancy). Compare it to the market going-in cap: a development yield above the exit cap is the economic reason to build rather than buy.
| Metric | Formula interviewers expect | Trap |
|---|---|---|
| Potential gross rent | Rentable sf x face rent PSF | Ignoring vacancy and concessions |
| Effective gross income | Potential x occupancy − free rent / abatements (+ other income) | Treating face rent as cash |
| NOI | EGI − operating expenses | Mixing debt service into "opex" |
| Cap rate | NOI / purchase price (or value) | Cap on in-place vs stabilized NOI |
| Development yield | Stabilized NOI / total project cost | Forgetting interest and lease-up loss |
Units that fail candidates before strategy starts
Physical vs economic occupancy. Six months free on a renewal can raise the occupancy chart while cutting cash collected. Economic occupancy is closer to physical occupancy times (1 − concession rate), or better: cash rent collected over potential rent.
In-place vs stabilized NOI. Stabilized assumes a future lease-up and rent level. It is a forecast. Pricing a buy-box on stabilized NOI without haircutting for time, TI, and vacancy risk is how candidates overpay in the room.
Gross vs triple-net leases. On NNN, tenants reimburse most opex; unreimbursed vacancy and landlord-paid items still matter. On gross, opex sits harder on the landlord. Ask who pays utilities, taxes, and insurance before you build the NOI bridge.
WAULT and the expiry wall. Weighted average unexpired lease term tells you when cash rolls. BXP's 2024 Form 10-K notes a portfolio weighted-average lease term of about 7.8 years and roughly 7% of square feet expiring in 2025 (BXP 2024 Form 10-K). A building at 90% occupancy with 40% of sf rolling in 24 months is a different asset from 90% with eight-year WAULT.
TI and leasing commissions. These are the real variable cost of leasing. They may sit below NOI in GAAP or NCREIF accounting. They still consume cash available to equity. Ask whether the case wants NOI, cash after leasing costs, or both.
Worked mini-case: Meridian Ridge Office
Prompt (invented company and figures). Meridian Ridge Partners owns a Class B office tower, 320,000 rentable sf, asking face rent $38/sf. Last year physical occupancy was 78%; this year it is 86%. Operating expenses are $7.2m and do not reimburse vacancy. This year the leasing team renewed 60,000 sf with four months free rent and granted $55/sf TI on 90,000 sf of deals (renewals plus new). A buyer offers $78m. Your PE client also has a shovel-ready expansion pad next door: $42m all-in cost for 110,000 sf, underwritten stabilized occupancy 92% at $40/sf, same opex intensity of $18/sf, and market exit caps on stabilized office around 6.5%.
Two questions: Did operations improve this year? Should they sell the tower and develop the pad, sell and walk, or hold?
Step 1 — Last year's NOI (ignore other income).
Potential rent at 100% = 320,000 x 38 = $12.16m.
EGI ≈ 0.78 x 12.16 = $9.48m.
NOI ≈ 9.48 − 7.2 = $2.28m.
Step 2 — This year's NOI after free rent.
Gross at 86% = 0.86 x 12.16 = $10.46m.
Free-rent hole on 60,000 sf: 60,000 x 38 x (4/12) = $0.76m.
EGI ≈ 10.46 − 0.76 = $9.70m.
NOI ≈ 9.70 − 7.2 = $2.50m.
Occupancy rose 8 percentage points; NOI rose only $0.22m. That is not a disaster yet — until leasing cash.
Step 3 — Cash after TI.
TI cash = 90,000 x 55 = $4.95m this year.
Cash from operations after TI ≈ 2.50 − 4.95 = −$2.45m.
Ned's rule. If occupancy and NOI move in opposite directions, or NOI rises while cash after TI collapses, lead with the cash bridge. The score sheet rewards the candidate who refuses to high-five a fill rate that was bought with equity.
Step 4 — Implied going-in cap on the offer.
Cap on this year's in-place NOI = 2.50 / 78 = 3.2%. That is not a buy for a value-add PE shop unless you believe a much higher stabilized NOI is near and cheap to reach. Even on last year's lower NOI the implied cap is only 2.9%. The offer prices the tower like a core CBD asset while the cash story is still lease-up.
Step 5 — Development yield on the pad.
Stabilized potential rent = 110,000 x 40 = $4.40m.
Stabilized EGI at 92% = 0.92 x 4.40 = $4.05m.
Stabilized opex = 110,000 x 18 = $1.98m.
Stabilized NOI = 4.05 − 1.98 = $2.07m.
Development yield = 2.07 / 42 = 4.9%.
Against a 6.5% exit/market cap, the pad yields below the buy-box: you are building something worth roughly 2.07 / 0.065 ≈ $31.8m for $42m of cost — about $10m of value destruction before lease-up risk.
Recommendation. Do not celebrate the occupancy print. Lease to cash: shorter free rent, lower face if needed, or require face rent that still NPVs after TI. On the corporate decision: sell the tower only if you can reinvest at a higher yield elsewhere; do not plow proceeds into the pad at a 4.9% development yield versus a 6.5% market cap. Hold and fix leasing economics beats building a negative-spread expansion. Next exhibit I would ask for: rent roll by expiry year and TI per deal versus in-place rent.
What a generic profitability tree misses
- Price is effective rent, not list rent: face rent times (1 − abatement share).
- Volume is occupied sf, but concessions are negative price on the same line.
- TI and commissions are the variable cost of leasing, cousin to COGS, even when they sit below NOI.
- Enterprise value moves with NOI / cap rate, so opex discipline and lease quality move value more than a three-point occupancy headline.
- Leverage turns a small NOI miss into a covenant problem — the same cash-first mindset you need in a restructuring case.
If you treat Meridian Ridge like a hotel ADR story without concessions, you high-five occupancy. If you treat it like a retailer, you talk comps. The unit is NOI after concessions and cash after TI, then value via cap or development yield.
Practice this on the clock
Run one timed case where you force an NOI bridge before any recommendation. Open CoachNed's five-minute first rep (three typed turns, instant scores, no account) or pick an asset-heavy prompt from the case library. For the math muscle alone, use the free quick math drill. Everything is open for seven days, no card; then $120 for a recruiting season or $49 a month.
Frequently asked questions
What is NOI in a real estate case interview?
NOI is property revenue less operating expenses, before interest and usually before tenant improvements and leasing commissions. Clarify whether the exhibit shows in-place or stabilized NOI, and whether vacancy loss and unreimbursed opex are already netted.
How do you calculate a cap rate in a case?
Divide NOI by purchase price or indicated value. State whether the NOI is trailing in-place or forward stabilized. A 50 bp exit-cap move can erase a large share of modeled IRR, so ask which cap the interviewer wants on entry and exit.
Why can occupancy rise while NOI falls?
Free rent, abatements, and below-market renewals raise physical occupancy while cutting cash collected. Tenant improvement packages can leave NOI flat or up slightly while cash available to equity collapses. Lead with economic occupancy and the cash bridge.
What is development yield versus cap rate?
Development yield is stabilized NOI divided by total project cost. Cap rate is NOI divided by asset value. If development yield sits below the market going-in or exit cap, buying a stabilized asset (or not building) usually beats developing.
Do McKinsey, BCG, and Bain ask real estate cases?
They do when the practice or client is real-estate related, and PE real-estate interviews use the same unit economics constantly. Public firm pages describe industry practices; they do not publish a fixed "RE case format." CoachNed is independent and unaffiliated with McKinsey, BCG, Bain, or other firms named for interview-style practice.
Sources
- NCREIF NPI Press Release, Q4 2025 — appraisal vs transaction cap rates, NOI growth, index size. Checked 2026-09-24.
- Nareit: REITs Deliver Record High Operational Performance (Q4 2024 Tracker) — REIT NOI, FFO, and occupancy by sector. Checked 2026-09-24.
- BXP Form 10-K for the year ended December 31, 2024 — in-service and CBD occupancy / leased percentages, WAULT, near-term expirations. Checked 2026-09-24.
- U.S. Census Bureau, Housing Vacancies and Homeownership, Q4 2025 — national rental vacancy rate. Checked 2026-09-24.