Returns & Cash-on-Cash

Target IRRs vary by risk profile: core/stabilized properties 6–9%; value-add 10–15%; opportunistic/development 15–20%+. In the current Pacific Northwest market (2026), stabilized well-leased commercial assets are underwritten to 7–10% IRR. IRR is time-weighted, so a faster hold period with the same total profit yields a higher IRR.

IRR (Internal Rate of Return) is an annualized return metric that accounts for timing — money returned sooner is worth more. Equity multiple is simply total cash returned divided by equity invested, with no regard for time. A 2.0x equity multiple over 3 years is far superior to 2.0x over 10 years, but the equity multiples are the same. Use both metrics together for a complete picture.

Cash-on-cash return is annual before-tax cash flow divided by equity invested. In the current Pacific Northwest market, stabilized commercial properties with conventional leverage typically generate 4–7% cash-on-cash in Year 1. Value-add properties may start lower but improve as rents are marked to market. Higher leverage generally increases cash-on-cash but also increases risk.

The exit cap rate assumption is one of the most sensitive inputs in commercial real estate underwriting. A 50-basis-point increase in exit cap rate (e.g., from 5.5% to 6.0%) reduces the exit value by roughly 8–9% on a stabilized property. Investors typically underwrite exit cap rates 25–75bps above the going-in cap rate to account for property aging and uncertainty.