My current work experience (1.5 yrs of MF lending, primarily) has been a bit of a hindrance to my job search. I had someone tell me post-interview that if my underwriting experience included the rest of the asset classes, he would have hired me.
I understand there are nuances to each. But from talking to various people, it seems that multi is sort of its own entity (and is the easiest), while the rest (retail, office, industrial, hotel?) can essentially be learned simultaneously.
My question is this: what are the main differences in underwriting multifamily versus the rest of the food groups? If I were to try and get some UW practice in these asset types, what are some things to keep in mind?
Interested in this as well. Also curious what you can do to minimize the stigma of only having multi family work experience. Anything other than excel / argus courses? (Already did this)
Multifamily properties are underwritten using Excel, while office, industrial and retail product is underwritten using Argus.
The main differences are (not an exhaustive list):
Argus - Most irms will expect you to be able to build out a rent roll using Argus. There's a host of intricacies involved in inputting each lease into Argus. For Example:
Understanding Credit Quality - Non-Multi UW involved UW Corporate or Government Tenants that have a unique creditworthiness.
Operating Expenses - Is the lease Full Service Gross (Landlord pays all Insurance, Taxes, Opex), NNN (Insurance, Taxes, and Opex billed back to tenant), Opex based on a Base Year, and a thousand permutations of a specific lease is structure.
Rent Growth - How is this being calculated based on a unique lease.
Percentage Rent - This is unique to retail, but UW percentage rent, which is based on an agreed upon percentage of gross sales.
Market Leasing Assumptions - This is a biggie and involves more "art" than any other aspect of UW non-multi. This is unique to Argus but it involves making general assumptions about what will happen to a tenant and/or space at lease-end
Understanding the various Lease-up costs associated with different tenants of different product types
Understanding how lenders view the various risks associated with various risks associated with leasing to large tenants. For example, if Amazon leases 50% of your building and there's a reasonable expectation that they are planning to move to a new HQ, a lender may require you to sweep cash flow into an escrow account to fund the costs associated with re-leasing.
There's obviously a ton more but I have a busy day so going to stop here and see what others have to say. I think acquiring the knowledge to UW non-multi assets is attainable. Don't let the interviewer discourage you.
This is pretty good as well - was in middle of writing mine below so tried not to overlap as much.
I mean there are a lot of differences, but primary between multi vs. 'commercial' uses is the tenant sophistication. I.e., with multifamily you just have a ton of 1 year leases and an extremely diversified tenant base where the average renter doesn't know shit about lease construction, so you usually just have your rent and then if they have any 'add-ons' like parking fees, pet rent, utility reimbursement, etc. And for those, you are generally just making an estimate based on market recovery/usage %'s. So if your utility expenses at a given property are estimated to be 200K, then you just assume like 65% of that is recovered (or whatever % is 'market rate' for the location). Unless you have an operating history/T12, then project the RUBs % accordingly). Similar with parking income. 200 stalls available? Figure that on average places are ~75% used/rented? Then you figure your monthly parking rate of $x multiplied by ~150 stalls. Obviously, the secret sauce with this is knowing what assumptions to make. Basically in my mind the whole model is one giant market leasing assumption (MLA). Also, when you're renting to a person, they usually care about different metrics. For example, when you've gone apartment hunting, i'm sure you haven't said "wow, I don't think I'm comfortable paying $3.52 PSF for this apartment when I could go down the street and get a similar one for $3.30 PSF". Generally speaking, you're going to say "this one is 2,000/mo and the one down the street is $2,100, but I (am or am not) comfortable paying the extra $100 based on (amenities offered, convenience, how the apartment looks, etc.)". Similar in buying a home in that sometimes emotions come into play with respect to rent seeking.
With commercial, entirely different story. it's strictly a business transaction so rents, expense reimbursement, capital accounts, etc. are tracked much more closely, and since in some cases there are less tenants with longer leases, more attention is given to modeling the cash flows associated with those tenants to a more granular degree (hence why excel is used in MF and Argus is used with the others).
Hotel is an entirely different animal, as valuing that is more akin to valuing a business.
I can't tell you the number of people who made fun of me for doing exactly this when I was apartment hunting lol.
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