Portfolio Underwriting and Anlysis
I consider myself proficient at underwriting, but recently I was asked to underwrite a large 7 property portfolio and I am a bit confused.
Do I get into the same level of detail for each property that I would for an individual underwriting?
How do I manage my time appropriately to underwrite this as efficiently as possible without wasting excessive time on one property?
Is there a well established template people use?
Answer is yes. But you only have 24 hours a day so how much detail can you really dive in. We also did large portfolios a few months back just to prove a point, that our shops got the gun powder and man power to close on that type of transaction. Overpaid the shit out of it, but it was to prove a point in the market. The IC memos were no where near the level of detail a single-deal one would be. Key is to really only zone in on critical non-quantitative details of the deal that could turn into a shitshow, in this case several structural issues with the properties that were spotted by our engineers and consultants. The underwriting of expenses were kinda not nitpicked considering we do zero-based undewriting on all our assets.
Sucks when you have just 2 analysts underwriting handful of deals in 60 days and management just wanna take down these type of elephant deals just cuz....
What is zero based underwriting for expenses?
In terms of how to underwrite it - here’s my process for a portfolio. If it’s office/retail/industrial and you’re using Argus - Argus has a portfolio roll up function. See if you have access to it.
Underwrite each deal individually and roll it up. Each asset should stand on its own at purchase and exit in case you want to split them up and sell them.
If it’s Resi, do the same thing, but start in your company template model. Underwrite each deal. And than choose one property as your base model. Open your other models one by one and copy and value paste your monthly or annual cash flow into your base model. Than add the monthly or annual cash flow to the base models main page to create the portfolio “roll up.”
Referring to multifamily. Zero based underwriting is underwriting expenses from scratch. We have our regional property managers going through every single line, meaning budgeting the most minuscule thing like how many coffee boxes we'll need per month for the resident lounge for example. This is just way too much to accomplish for a portfolio of deals in the DD period. We'll keep it high level for this kind of deal and trend historical expenses as much as possible.
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