Loss to Lease vs Property Vacancy: What Investors Should Know
Commercial real estate (CRE) refers to income-producing properties acquired for cash flow, appreciation, or both. While industrial, retail, office, and multifamily assets differ operationally, the economic framework is consistent: rental income funds expenses, and NOI drives value. A proforma translates that framework into projected financial performance. Within it, vacancy and loss to lease are separate assumptions that impact income […]
Debt Service Coverage Ratio (DSCR) in Commercial Real Estate
Nearly all commercial real estate transactions are financed with some combination of debt and equity. The equity comes from the property owner and/or their investors, while the debt comes from a bank or non-bank lender. The exact mix varies by transaction, but equity typically represents 15%–25% of the purchase price, with debt covering the remaining 75%–85%. One of the […]
Understanding the Importance of Verifying Operating Expense Line Items
When considering a commercial real estate investment, one of the first things that an investor will do is to ask the seller (or their representatives) for a series of documents. Typically, these documents include: prior year financial statements, property tax bill, utility bills, a rent roll, property management contracts, and insurance policies. Once received, the […]
Typical Assumptions Used To Create a Commercial Real Estate Proforma
In its most basic form, the business plan for a commercial real estate asset is to purchase a property and lease the space in it to individuals and businesses. The resulting rental income is used to pay for the property’s operating expenses (including debt service), and anything left over is distributed to the property owner(s). […]
Understanding the Internal Rate of Return
Fundamentally, the idea of making a commercial real estate investment is a simple one. An individual contributes a certain amount of capital towards the initial cost of an investment property. In doing so, they expect that they will receive their initial investment back, plus a return over time. Prior to making an investment decision or […]
Commercial Real Estate Investment Analysis – Are the Numbers Real?
Every commercial real estate (“CRE”) transaction in the United States follows a similar lifecycle, a property is discovered, a significant amount of due diligence and underwriting is performed to ensure the asset is investable, an offer is made, and the transaction is closed. While each of these phases of the transaction is important, perhaps none […]
