How can I make my proformas/financial models better for acquisitions guys?
Title. What do acquisitions guys like to see when I send over a proforma, excel model, etc? Analyst in brokerage, thx.
Based on the most helpful WSO content, there are a few things you can do to make your proformas and financial models more appealing to acquisitions professionals:
Accuracy: Ensure your numbers are accurate and realistic. Overly optimistic projections can be a red flag.
Detail: Include as much detail as possible. This helps the acquisitions team understand the assumptions behind your numbers.
Simplicity: While detail is important, try to keep your models as simple and straightforward as possible. Complex models can be difficult to understand and time-consuming to analyze.
Flexibility: Make your models flexible so that the acquisitions team can easily adjust assumptions and see how changes affect the outcome.
Documentation: Clearly document your assumptions and the steps you took to arrive at your numbers. This can help the acquisitions team understand your thought process and make it easier for them to validate your work.
Remember, the goal is to provide the acquisitions team with a clear, accurate, and comprehensive picture of the potential investment. The easier you make their job, the more likely they are to appreciate your work.
Sources: Why the WSO Obsession with Acquisitions?, Acquisitions: What are some creative ways to win a deal?, Moving from Appraisals to REPE Acquisitions?, How did your acquisitions career evolve?, How to Break into Content Acquisition?
To be honest my shop never looks at proforma / CF projections sent by brokers - we take their in-place numbers and make our own assumptions regarding tenants, future roll etc.
Now some shops might do it differently, but we never put any weight to broker underwriting unless there's information they want us to price in (e.g. there's a tenant-in-tow and the revenue should be included day 1)
What's helpful for me to know is a strong story behind the disposition (e.g. why does the seller need to move this?) and anecdotal information (tenant performance, market comps etc.)
Man this sucks to hear as a 3 year broker analyst. I feel like I'm conservative with my underwriting
Agree
Agree - however I assume you, like us, use their Argus model as the foundation for your own underwriting (at least during the bid period), at least in cases where leases/a recovery budget have not been provided?
OP, at my shop we generally rely on brokers' Argus model as a baseline, but we still vet every line item to ensure the rent roll and budget are modeled correctly (we'll use your recovery assumptions if nothing is provided to vet them). Anything forward-looking we always use our own assumptions though and make other adjustments to reflect our business plan.
I would say all we really hope for from broker models is that they are as accurate as possible to 1. minimize time we spend reviewing/fixing it and 2. to minimize any issues that come up during DD.
Yep exactly - use Argus as baseline numbers and make our own assumptions for proforma. I usually just export the Argus rent roll which feeds into my shop's template model then adjust from there.
You bring up a good point re: reimbursements - I focus on retail + office and reimbursement structures for tenants can get complicated fast. Because of how time consuming it is to get the reimbursement structures right, during the bid stage we rely on broker recovery percentages as a baseline figure (we only start digging through reimbursements once we're under contract). If the brokers misrepresented the reimbursements then that becomes a price adjustment discussion.
Don’t care care about your projections/analysis/pro forma. Even on something useful, like tax info, I’m checking your work anyway. RE modeling is so simple that I’d rather start from scratch and build it myself than waste time understanding your assumptions and poking holes in your analyses.
Just send easy to use excel files. If the seller has a shitty format (say their multi family rent roll has multiple rows for one tenant/unit) put it in a simple table for me. Make sure numbers aren’t in “text” format in excel. Don’t send a commercial rent roll in PDF form without the corresponding excel file for the love of god. Not a huge fan of getting Argus files with projected future leases saved as current base tenants.
Super dumbed down and simple is always best. Treat me like I’m 5 years old. Like the above says, knowing the motivation for selling and being honest about what’s going on at the property are key. No one likes when we get a broker spewing clear BS about valuation based off their insane year 1 numbers.
While I think you guys are understating the value of a broker's ARGUS model (it can save a ton of time to just review instead of build from scratch, and 90% of marketed assets don't provide enough info to model recoveries anyways), this guy makes a great point on where you should really focus your time OP.
So many sellers have shitty accounting systems and horrendous formatting on the data they provide. If you can take that and reformat it into something digestible while you're going through your underwriting process, you can make investors' lives way easier.
Great feedback here. Seems like the consensus is clean, simple, straight to the point and w/o inflated numbers.
Yeah I probably spend 5 mins going through a broker proforma mainly to get any color on anything that immediately jumps out on the T-12, i.e., “x T-12 expense is y because of z abnormality, etc”. Otherwise do not care about broker rent, occupancy, insurance, taxes, or any other big ticket expense projection.
For acquisition models from potential GPs really looking for a basic level accuracy and understanding of reality. Immediate turnoff is seeing an outsized 15%+ IRR on some commodity multifamily asset with a free and clear sub-5 cap in place with 5-7% annual revenue growth off Y1 market rents the asset is not actually getting. Not saying they’re wrong but need a ton of support as to why they think they can do that, especially if the Seller is institutional quality with a good operating partner/platform. Feel like a lot of these guys don’t even think of the fact that their UW basically says “I’m going to do better than X well-capitalized, owner that has a 10k unit presence in this market.” Long story short I’ll spend a lot more time running the traps on a deal with realistic UW from a GP showing a 13% deal-level return than the same deal being shown to me by someone else at a 18% - which coincidently happens all the time.
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