Vetti deal vetting
Deal vetting covers how lenders and equity partners test a commercial property deal before committing capital. Readers settle what a sponsor’s package must prove to a skeptical credit committee.
The questions are concrete. A reader can test whether debt service coverage and loan to value survive a stressed rent roll and a trailing operating statement. Sponsor track record gets weighed against the schedule of real estate owned and guarantor liquidity. Other topics include the appraisal, the environmental report, the term sheet and the waterfall between general and limited partners. A diligence team requests each of these items. Lender underwriting and equity committee review both draw on this material, so the same documents answer questions from either side of the table.
- Base Case Versus Downside Case
What belongs in a base case and what belongs in a downside case, with linked cap rate and growth inputs and a three-year equity example worked step by step. - Cost overrun and the equity gap
A development absorbs overruns until revised cost to complete exceeds usable funding. It covers contingency, committed debt and a worked equity gap case. - Exit cap rate stress: when equity gets nothing
The exit cap rate that returns nothing to equity solves one closing equation. A worked example shows an 8 percent threshold, the cushion test and mistakes. - Interest Rate Shock and Debt Service Coverage
Learn how rising rates affect debt service coverage, with interest-only break-even calculations, amortization, loan spreads, cap expiry and covenant limits. - Is Rent Growth an Input or a Result?
Rent growth is a typed input, but its support is a result of comps, supply & expense math. A worked apartment example shows rent rising while NOI falls. - Lease-Up Delay and Carry Cost
Lease-up delays drain interest reserves, trigger new sponsor equity and reduce refinance proceeds, as a worked example shows through cash flow and debt sizing. - Operating Statement Red Flags in Seller Packages
Seller operating statement red flags: proforma versus trailing actuals, normalization bridges, capital items in coverage, and a worked cash flow example. - Pro Forma Inputs Versus Calculations
Learn how to separate pro forma assumptions from calculated outputs, trace hidden inputs, and compare base and stress cases for commercial real estate deals. - Reserves and months of runway
Reserve runway depends on spendable cash, stressed monthly deficits and the cash needed to reach paying occupancy, with a worked office lease-up comparison. - What Is a Reasonable Downside Case?
A reasonable downside case links occupancy, rates & exit cap rate to debt service and equity proceeds, and shows where the deal first misses an obligation. - Which Expense Lines Do Sellers Understate?
Management fees, reserves & reclassified costs are the lines most exposed, with a worked NOI and value example. - Worked example: cost overrun on a ground up project
A hypothetical ground up project shows how a cost overrun with fixed debt becomes new equity, lower return on cost and a thinner margin over completed value. - Worked example: exit cap rate widens at sale
A hypothetical sale where the exit cap rate widens by 150 basis points, traced from sale price through selling costs and debt payoff to equity proceeds. - Worked example: occupancy falls on a stabilized property
A worked occupancy stress on 100 apartments traces lost rent through fixed costs, NOI, debt coverage and a 1.25x test, with the break-even occupancy shown. - Worked example: rates rise on a floating-rate loan
A hypothetical floating-rate loan shows how a rising benchmark cuts coverage and cash flow, and how cap expiry and refinancing tests change the result.