📊 CRE Proformas Explained: How to Evaluate Investment Deals Like a Pro 💼

📊 CRE Proformas Explained: How to Evaluate Investment Deals Like a Pro 💼

📈 Proformas 101: Mastering CRE Deal Analysis for Smarter Investments 🧠

📊 Using Proformas to Evaluate Deals in Commercial Real Estate

If you're investing in commercial real estate (CRE), a well-prepared proforma isn't just helpful — it's essential. A proforma is a forward-looking financial statement that projects the income, expenses, and net operating income (NOI) of a property. In short, it's your deal’s crystal ball.

Whether you're buying your first retail strip center, developing a multifamily property, or leasing out flex industrial space, the proforma helps you determine if the numbers make sense before signing on the dotted line.

🧾 What Is a Proforma in Real Estate?

In commercial real estate, a proforma is a financial model used to evaluate a property's potential performance. It includes:

·         Projected Gross Rental Income

·         Vacancy Allowance

·         Operating Expenses (OPEX)

·         Net Operating Income (NOI)

·         Debt Service Coverage Ratio (DSCR)

·         Cap Rate and Resale Value Assumptions

Think of it as your “business plan” for the property.

📐 Why Proformas Matter

Proformas are used by:

·         Investors to compare multiple properties

·         Developers to pre-qualify construction financing

·         Lenders to underwrite loans

·         Brokers to market deals accurately

Without a solid proforma, you’re flying blind.

🧠 Key Metrics to Analyze

When evaluating a CRE proforma, focus on:

·         NOI: Net income after operating expenses (before debt)

·         Cash-on-Cash Return: ROI based on actual dollars invested

·         IRR (Internal Rate of Return): Projected rate over time

·         Cap Rate: A property’s income return compared to price

·         DSCR: Your deal’s ability to cover loan payments

🛠️ Tips for Evaluating Proformas

1.      Stress Test the Numbers: Adjust vacancy, rent growth, and expenses to create best- and worst-case scenarios.

2.      Watch for Fluff: Are the rent projections too optimistic? Are expenses underestimated?

3.      Validate Assumptions: Cross-check market comps, expense ratios, and local taxes.

4.      Look Beyond Year 1: Multi-year projections matter, especially for value-add deals.

🤝 Need Help Evaluating a Deal?

At Viking Enterprise Team, we help investors and business owners review proformas, structure deals, and secure the right financing. Let’s run the numbers together before you commit.

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© 2023-2024 Bill Rapp, Broker Associate, eXp Commercial Viking Enterprise Team