CapEx vs OpEx in commercial real estate
One reduces NOI and one does not — which is why capital spending is the easiest money in a deal to lose track of, and why the worst line in a capex plan is the one with no date on it.
The line, and why it matters more than it sounds
Operating expenses are what it costs to run the building this year: taxes, insurance, utilities, management, routine repairs. They sit above the NOI line and reduce it.
Capital expenditures create or extend an asset: a roof, a parking lot, an HVAC replacement, a tenant buildout. They sit below the NOI line and do not reduce it at all.
That single accounting fact is the whole problem. A building can show an excellent NOI, an excellent cap rate, and still be eating capital that appears in neither. Value is NOI over a cap rate, so capex never touches the headline — it only shows up in the cash flow and in the return, which are the two things a summary page does not print.
Which side is it on?
| Item | Which | Why |
|---|---|---|
| Patching a roof leak | OpEx | Keeps the existing asset running |
| Replacing the roof | CapEx | Creates an asset with a multi-year life |
| Property taxes, insurance, utilities | OpEx | Annual cost of operating |
| Parking lot resurfacing | CapEx | Extends the life of the asset |
| Routine landscaping and cleaning | OpEx | Recurring upkeep |
| Tenant improvements | CapEx | Capital cost of leasing, tied to a lease date |
| Leasing commissions | CapEx | Capital cost of leasing, tied to a lease date |
| Replacement reserves | Below NOI | A set-aside, not an operating cost — and not a dated plan either |
The borderline cases are worth settling with your accountant before they reach a model rather than after. The test is whether the work extends the life or capacity of the asset, or merely keeps it running.
Timing is the half nobody models
Knowing the plan totals $695,000 is the easy part. When it gets spent decides what it costs you. Money spent in year one is money not earning for the rest of the hold. Money scheduled for year four may belong to whoever owns the building by then — and if you are underwriting a five-year hold, a back-loaded plan is a very different risk from a front-loaded one.
So DealWise buckets a capex plan against your acquisition date, not the calendar: year one, years two to three, year four plus. And it names the shape only when one end actually holds a majority — a plan is front-loaded or back-loaded when more than half the money sits at one end, and distributed when neither does.
Example: a $695,000 plan on a five-year hold
Sample inputs
- Acquisition
- March 2026
- Roof replacement
- $180,000 · Jun 2026
- Parking lot
- $95,000 · Apr 2027
- HVAC units
- $140,000 · Sep 2028
- Facade
- $220,000 · Mar 2030
- Tenant buildout
- $60,000 · no date
Year one takes $180,000. Years two to three take $235,000. Year four and beyond takes $220,000. No end holds a majority, so the plan is distributed — which on a five-year hold is the comfortable answer.
Then there is the last line. The tenant buildout has a cost and no date. It is $60,000 — 8.6% of the whole plan — and it lands in no year of the cash flow at all.
Add the buckets and you get $635,000. The plan is $695,000. A model built off the yearly numbers is missing $60,000, the totals still reconcile on paper, and the error always flatters the return — never hurts it. That is why DealWise reports undated capex as its own line rather than dropping it into year one or quietly leaving it out.
What DealWise does with a capex plan
Dated, not averaged
Each item carries its own date, so the spend lands in the year it actually happens.
Undated money is named
An item with no date is reported as undated rather than quietly dropped into year one.
Front- or back-loaded
The pattern is called only when one end holds an outright majority of the plan.
Buckets match the hold
Year one, years two to three, year four plus — measured from your acquisition date, not the calendar.
Below the NOI line
Capex never touches NOI, so the cap rate stays honest while the cash flow shows the cost.
Empty plans return nothing
A plan with no cost is not a plan with zero cost, and the tool does not print one.
Three ways capex goes missing
It is replaced by a reserve. A per-square-foot reserve is an estimate of the average; a capex plan is a schedule of the actual. Both are legitimate and they answer different questions — underwriting on the reserve alone hides which years the spending really falls in, and the lumpy years are the ones that break a coverage test.
The cost of leasing is left out. Tenant improvements and leasing commissions are capital costs tied to specific dates, and a pro forma that models a rollover without modelling what the rollover costs overstates cash flow in exactly the years the building is most exposed.
It never had a date. The undated line above. It survives every check that looks at totals and fails every check that looks at years.
Frequently asked questions
What is the difference between capex and opex in commercial real estate?
Operating expenses are what it costs to run the building this year — taxes, insurance, utilities, management, routine maintenance. Capital expenditures are spending that creates or extends an asset: a new roof, a parking lot, an HVAC replacement, a tenant buildout. Opex sits above the NOI line and reduces it. Capex sits below, and does not.
Does capex affect NOI?
No, and that is exactly why it gets lost. NOI is revenue less operating expenses, so a $220,000 facade project does not touch it. The building can show a strong NOI and a strong cap rate while consuming capital that never appears in either. Capex shows up in cash flow and in the return, not in the headline.
Is a roof replacement capex or opex?
Capex. Replacing a roof creates a new asset with a multi-year life. Patching a leak in the existing one is repairs and maintenance, which is opex. The line is whether the work extends the life or capacity of the asset or merely keeps it running, and borderline items are worth agreeing with your accountant before they land in a model.
Are tenant improvements and leasing commissions capex?
They are capital costs of leasing, and they behave like capex in a model: below the NOI line, lumpy, and tied to specific dates when leases roll. They are also routinely left out of a pro forma that models the rollover but not what the rollover costs, which overstates the cash flow in exactly the years it is most exposed.
What is capex timing and why does it matter?
When the money gets spent, not just how much. The same $695,000 plan produces very different returns depending on whether it lands in year one, is spread across the hold, or waits until year four — because money spent early is money not earning, and money spent late may belong to the next owner.
What is undated capex?
A capital item with a cost but no date attached. It is the most dangerous line in a plan, because it is real money that lands in no year of the cash flow. A model built off yearly buckets simply misses it, and the omission always flatters the return rather than hurting it. On the example here, $60,000 of a $695,000 plan — 8.6% — has no date on it.
What is a reasonable capex reserve?
Reserves are an annual per-square-foot or per-unit set-aside meant to smooth the lumpiness, and they are a different thing from a capex plan with dated items. A reserve is an estimate of the average; a plan is a schedule of the actual. Underwriting on a reserve alone hides which years the spending really falls in.
Related guides
What is NOI?
The line capex sits below, and why that is where money hides.
Break-even occupancy calculator
Reserves are below NOI too — and leaving them out flatters by points.
Exit cap rate
What late capex does to the number most of the return rests on.
WALT explained
The rollover schedule that decides when TI and commissions land.
How to read an offering memorandum
Where a capex plan is usually thin, and what to ask for.
CRE glossary
Every term, grouped by the question it answers.
Free CRE calculators
No signup.
Cap rate calculator
NOI and cap rate from rent, expenses and price.
IRR calculator
Where capex timing actually shows up in the return.
Debt yield calculator
The lender test that structure cannot flatter.
Loss to lease calculator
The rent gap, suite by suite.
DSCR calculator
Coverage, and the loan the income supports.
All DealWise calculators
Every free CRE tool in one place.
Capital spending does not show up in NOI. It should still show up in your decision.
DealWise AI models your capex plan against the acquisition date, keeps undated items visible instead of burying them, and runs the whole thing through the cash flow and the return — so the number you decide on includes the money the cap rate never sees.