Modeling Multifamily from an OM
I know how to model, and understand the basics. However, being able to approach and attack an OM by the CBREs of the world is something I'm having trouble with. In terms of how to digest the information given, apply certain assumptions and adjust the model accordingly.
Anyone have any recommendations for a website/soruce where I can find someone who can help/walk me through an example OM? Happy to pay for a remote "lesson" on this during this Corona downtime. Not looking for a REFM type where it shows me the mechanics of modeling.
What exactly is the question? Do you have an OM and you are wondering how to underwrite/size the deal from it? Or are you looking for an OM to practice modeling?
If you have an existing OM, you should only be looking for historical operating statements, the proforma, rent rolls and rent steps, sources and uses, and maybe some others I'm missing but those are the basics. You should be doing your own market research for comps, cap rates, vacancy, etc.
If you are looking for an OM, message me and I can send you an old one and walk you through it
Most OM's will have the broker's (highly) optimistic pro forma included.
The best thing to do is go line by line, and understand the reasoning for each assumption (most OM's will have a section outlining each assumption), then adjust each assumption based on your own reasoning/experience.
All you really need from the OM is:
If you don't know the market well, reading through that section can give you a decent starting point. Do your own comp research.
Use your own assumptions to model base case, downside, and upside.
I would start by entering the rent roll they provide you into the model. Also look at the t12 And begin entering expenses. Enter your own rent and expense growth assumptions. Pay attention to the notes to cash flow - the brokers will tell you why they adjusted some numbers. Basically you need to use that to understand what the adjustment is, and is it reasonable. For example, T3 Late fees are $25,000. Broker underwrites $100,000 in late fee income year 1. You probably don’t want to underwrite that. So you either decide to dial back late fees based on a conversation with your Property Manager, or you exclude late fee income and don’t underwrite (so that you don’t cap that value).
Take that exit cap down 100bps, crank that rent growth. Only way to get to COVID yields.
Or price to perfection, it's a buyer's market now
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