How would a lender value an owner occupied building?
I understand that a building's valuation derives from NOI/Cap Rate. If you own the building but you are your own tenant, how would the lender come to a value for the building? Even if you pay yourself rent, how much rent is justifiable from the point of view of the lender?

Edit: Thank you all for the very informative answers
[{"id": "hviacop", "text": "They will look at what the market rent would be if the property was leased.", "replies": [{"id": "hvim2yf", "text": "Simple and accurate answer.", "replies": [], "depth": 2}, {"id": "hvimk4e", "text": "I typically do income approach with market rent and sales comp. Most lenders ask for two approaches unless it's a summary form appraisal. \n\nOO is fee simple, so it's usually pretty straightforward.", "replies": [], "depth": 2}, {"id": "hvnmam9", "text": "How do they determine what the market rent would be for a vacant unit?", "replies": [{"id": "hvp0rcw", "text": "By looking lease rates, both asking and recently executed leases, for comparable spaces.", "replies": [{"id": "hvqlpws", "text": "Thanks for that. How do you know what is an equivalent space when the building is the only one of its type in that location?", "replies": [{"id": "hvqwazo", "text": "You can always find some kind of comparable. You can also talk to leasing brokers to get a sense of what space may rent for.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hviaw77", "text": "The appraiser would likely appraise the building as Fee Simple (more accurate value, most likely) and Leased Fee. Fee simple would use a sales comparison approach, cost approach (if new), and income approach. Sales approach might be most applicable if no official lease or find market rate for similar units. The leased fee value could come in way high if you charge yourself a higher than market rate rent. Appraiser would use that NOI and cap rate to determine a value. Lender will probably lend on Leased Fee value.", "replies": [{"id": "hvp2uqk", "text": "In the case of owner occupied where it's a pocket to pocket lease, the current lease has little to no impact on value since it would likely be terminated upon sale. If it were to sell, which all appraisals assume, rent would reset to market since the seller wouldn't agree to continue to pay above market rent.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hvibimd", "text": "Rent comps and the income approach", "replies": [], "depth": 1}, {"id": "hvijn18", "text": "Everyone is too focused on valuation and not enough on how lenders underwrite owner occupied buildings. \n\nUnderwriting will look at global underwriting of debt and income of your tax returns for the lowest interest rates to ensure your company income can service the mortgage with adequate debt service coverage ratio. Typically banks and SBA lenders do this detailed analysis.\n\nNext are lenders that do no doc or low doc loans that will look at your bank statements, FICO, and years in business to determine loan leverage and rates.\n\nFinally there are hard money lenders that will give you a high rate low leverage loan with little to no questions asked.", "replies": [{"id": "hvjenq2", "text": "In everybody's defense, OP asked about value not how the loan is underwritten.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hvilea7", "text": "Bank / nonbank lender credit policy will differ, but generally owner-occupied commercial real estate falls more into the realm of C&amp;I than CRE. I.e, providing an owner-occupant financing on the CRE that the owner occupies is effectively just giving the owner a loan but taking the RE as collateral. \n\nThis means they would determine your (owner occupant) repayment ability. If this is a business they'd look at your business-- historical financials, leverage, repayment ability, sales growth, trends, etc. The rate in which you lease to yourself is largely immaterial as its ultimately a wash whether you're making yourself pay $5 or $10k.\n\nIf you're referring to actual collateral value, appraisals will still be completed and used by the bank. Appraiser will look at your lease but consider market rate leases at comparable properties with arms length landlord-tenant contracts.\n\nSource-- I've underwritten these deals. Kind of annoying as it's not really CRE, more business lending.", "replies": [{"id": "hvj3eed", "text": "If the owner has other tenants along with the space the owner occupies, how would you underwrite to account for those other rents coming in?", "replies": [{"id": "hvjf7jp", "text": "I do the following:  \n\n(Operational cash flow of the operating entity owner occupant  + rent expense that the owner occupant pays the related property entity + rental income of non related tenants - cash expenses at the property entity ) divided by (Proposed debt service on term loan on the property + Existing debt service on the borrowings at the operating owner occupant)  \n\nThe calculation above should give you and global debt service. You are looking for a reasonable cushion and you can stress it by making assumptions on the performance of the owner tenant, increases in vacancies on the non related tenants or both.  \n\nThis is a C&amp;I loan and not a CRE loan, and the majority of the commercial banks do them.", "replies": [], "depth": 3}, {"id": "hvjy6q8", "text": "What % of the space will you're business occupy? Over 50% its going to still be C&amp;I. Under that it gets a bit fuzzy and the type of property matters (occupying 2 of 5 bays in a strip center is harder to call owner occupied that an industrial building). Once you get to about 25% owner occupied its back around to a CRE loan.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hvimmjk", "text": "The lender will underwrite based on the performance of your business, not based off the appraisal of the property.", "replies": [], "depth": 1}, {"id": "hvjc4cx", "text": "Rent should be set at 8% or less of your gross sales.", "replies": [], "depth": 1}, {"id": "hvk1yph", "text": "And a higher cap rate would be applied", "replies": [], "depth": 1}, {"id": "hvl07dt", "text": "They will arrive on the value by calculating the market rent and the cap rate (Cap Rate = NOI / Property Value). If the property is being purchased by an owner that would like to occupy it (or already is); most banks will lend more vs. a new owner that wants to rent it out. \n\nFor example. you own a pizza shop and currently rent the space, but the property owner wants to sell.  Your local bank that you do business with and that you have a relationship with will normally give you better financing terms than if I wanted to buy it and keep renting it to you. Better financing terms could be a higher loan-to-value or a lower interest rate or a longer term. Their thinking is like that of a homeowner; you will fight to pay the mortgage if anything happens since you have much more at stake than if I bought it but was not occupying it.", "replies": [], "depth": 1}]