Stress test assumptions record template
This template records the assumptions and stress levels behind a real estate underwriting so a reviewer can trace each number to its source. Sponsors and capital raisers fill it in, and family office investors read it during diligence.
The template
| Field | What to record | Why a reviewer cares | Your entry |
|---|---|---|---|
| Model and version | Property name together with the Argus or apartment underwriting model file name and version label, matched to the investment memo that presents the base case. | A reviewer confirms that every stress result traces to the same model that produced the base case, so figures can be reproduced. | |
| Base case rent assumption | Starting rent per unit or per square foot and the annual growth rate, with the market data behind each and the stressed rent level. | Rent growth is usually the first input tested, and oversupplied markets with rising vacancies make optimistic growth easy to spot. | |
| Occupancy and lease-up vacancy | Stabilized occupancy percentage and the vacancy assumed during lease-up, plus the lower occupancy level at which the deal fails. | Occupancy drives income directly, and a stated breaking level shows how much cushion exists between the base case and failure. | |
| Net operating income break point | Net operating income in dollars at which the deal fails, shown as a percentage below the base case figure. | The distance between base case income and the break point gives sponsors and investors a shared measure of the margin for error. | |
| Capital expenditure and tenant improvements | Budgeted capital costs and tenant improvement allowances per square foot, with the overrun percentage applied in the stress case. | Capital spending is one of the acquisition assumptions an investment management team tests, and underestimates reduce cash flow and returns. | |
| Construction duration and cost | Base case schedule such as 18 months and a stress case that adds two months, with the cost overrun tested against the budget. | Delays extend carrying costs and push back stabilization, so a stated schedule shock shows whether development returns hold. | |
| Interest rate and refinancing | Base loan rate and the higher stressed rate, with the refinancing terms and proceeds assumed at loan maturity. | Rates change debt service and the proceeds available at refinancing, which can turn a sound business plan into a cash shortfall. | |
| Exit capitalization rate | Cap rate applied at sale in the base case and the higher rate tested, with the holding period in years. | Sale value depends heavily on the exit rate, and the holding period determines how long an assumption must stay true. | |
| Debt level | Loan amount and loan to value ratio in the base case, with the lender name and the debt terms used in the model. | Moderate debt combined with conservative underwriting is one stated approach to protecting capital across cycles, so reviewers compare the ratio with the stress results. | |
| Underwriting method and source | Method and data source behind each assumption, matching what a diligence questionnaire asks managers about exit rates and refinancing. | Auditors and allocators need support for key assumptions, and a named source lets them test whether the number came from evidence or habit. | |
| Independent review of acquisition assumptions | Name of the investment management team member who tested the acquisition assumptions apart from the deal team, with written findings attached. | A second check on rents and exit rates gives underwriting an internal control before capital is committed to the deal. | |
| Prior assumption calibration | Comparison of earlier assumptions with actual results and reconciled value changes, plus the valuation model and memo supplied to auditors. | Calibration shows whether past assumptions proved too hopeful, which tells a reviewer how much weight to give the current set. | |
| Capital preservation rationale | Short statement of how conservative underwriting and the stress results together protect capital across market cycles. | It ties the numbers to an intent, so a reviewer can judge whether the assumptions match the stated risk posture. |
How a reviewer uses a completed template
A reviewer such as a lender analyst or an investment committee member reads the Base case rent assumption first and compares it with the Underwriting method and source. The Net operating income break point shows how far results can fall before the deal fails. That distance matters. The Construction duration and cost field is checked against the 18 months of base schedule and the two added months in the stress case, while the Independent review of acquisition assumptions confirms that a party apart from the deal team tested the figures.
Reviewers also read the Exit capitalization rate beside the Interest rate and refinancing field, since both decide whether a sale or a new loan clears. A wide gap between the Base case rent assumption and the Prior assumption calibration signals optimism. Thin cushions in the Debt level get a second look.
Common gaps in a completed template
Gaps tend to cluster in a few places. The Exit capitalization rate is often entered without any stress level beside it. The Occupancy and lease-up vacancy entry may show a stabilized figure while the vacancy assumed during lease-up is missing. The Underwriting method and source is sometimes blank, which leaves auditors without the valuation memo’s support for key assumptions. A Prior assumption calibration that lists only favorable comparisons also draws attention, because reconciled value changes normally include misses.