What does the term 'before tax cash flows' represent?

'Before tax cash flows' typically refers to the cash generated from an investment property before any tax obligations are taken into account. In this context, the most appropriate definition is that it represents net operating income minus leasing and capital costs.

Net operating income (NOI) is the income generated from the property after deducting operating expenses but before deducting taxes or financing costs. By subtracting leasing costs (like commissions or tenant improvements) and capital costs (such as those expenditures necessary for long-term improvements), you arrive at the cash flow that is available from the property before taxes are applied. This measure is crucial for investors as it helps them understand the operational profitability of the property while providing a clear view of cash available for potential tax obligations and other uses.

In contrast, other options do not align with the definition of before tax cash flows as closely. For instance, net operating income minus all property debts would yield a net figure after financing costs, which is not the main focus of before tax cash flows. Similarly, gross income before expenses are paid does not consider necessary costs involved in operating the property, and net income after taxes includes deductions for tax liabilities, which directly contradicts the concept of before tax cash flows.