How to Build a Multifamily Pro Forma from a Broker OM

The multifamily pro forma is the foundational REPE modeling exercise. Every superday, every take-home case, and most on-site modeling tests start here: a broker's offering memorandum, a blank spreadsheet, and 45–90 minutes to build a credible underwriting from scratch. This guide walks through the full workflow — revenue build, expense build, capital structure, and returns — with the specific traps that separate candidates who've done this before from those who haven't.

Step 1: Read the OM before you touch the spreadsheet

Before entering a single number, extract these from the OM:

• Unit count and mix (studios, 1BR, 2BR, 3BR — rents and counts differ by type)
• In-place vs. market rents (the loss-to-lease gap drives value-add thesis)
• Occupancy (physical and economic — they differ when loss-to-lease is present)
• Expense statement (T-12 actuals, not pro forma projections — brokers inflate)
• Capital history (recent renovations, deferred maintenance, upcoming capex needs)
• Financing summary (assumed LTV, rate, amortization — often optimistic)

The OM's pro forma is a marketing document. Your job is to rebuild it with conservative assumptions and identify where the broker's numbers are aggressive.

Step 2: Revenue build — GPR to EGI

Gross Potential Rent

GPR = Σ (Units_i × Market Rent_i × 12)

Build rent roll by unit type, not a blended average. If the OM shows 200 units at a $1,500 average, check whether that's a true weighted average or a rounded figure that hides a mix shift.

For value-add deals, you need two GPR lines:

• In-place GPR: occupied units at in-place rents + vacant units at $0
• Market GPR: all units at market rent (the stabilization target)

The gap between them is loss-to-lease — the single most important number in a value-add underwriting.

Other Income

Parking, pet fees, storage, laundry, utility reimbursements, application fees. Typically 3%–8% of GPR for stabilized multifamily. Verify against T-12 actuals; brokers often assume higher other income than the property historically collects.

Vacancy and Credit Loss

EGI = (GPR + Other Income) × (1 − Vacage Rate) × (1 − Credit Loss Rate)

Stabilized assets: 5%–7% vacancy is standard; 1%–2% credit loss.

Value-add / lease-up assets: don't apply a flat vacancy rate to market GPR. Model occupancy ramp explicitly:

• Month 1–6: 78% physical occupancy (current)
• Month 7–12: lease-up to 88%
• Month 13–18: stabilize at 95%

Each month's EGI = occupied units × in-place rent (or market rent for renovated units) + other income − credit loss. Flattening this into a single vacancy haircut on market GPR is the fastest way to overstate Year-1 income.

Step 3: Expense build — EGI to NOI

Operating Expenses (typical multifamily line items)

| Category | Typical Range (% of EGI) | Notes | |----------|------------------------|-------| | Property Taxes | 8%–15% | Verify assessed value vs. purchase price — reassessment risk | | Insurance | 2%–4% | Rising post-2020; don't use stale OM figures | | Utilities | 3%–8% | RUBS/sub-metering affects who pays | | Repairs & Maintenance | 4%–7% | Higher for older stock | | Payroll / Management | 4%–6% | On-site staff vs. third-party management | | Management Fee | 3%–5% of EGI | Often excluded from "operating expenses" and shown separately | | General & Admin | 1%–2% | | | Replacement Reserves | $250–$350/unit/year | Below NOI — affects CFBD, not NOI |

NOI = EGI − Operating Expenses

Property tax reassessment trap: if you're buying at a price well above the current assessed value, the tax bill will reset at or near purchase price × local mill rate. Models that carry forward the seller's T-12 tax expense understate expenses by 20%–40% in many markets. Always check the assessor's record and model taxes on your purchase price.

Expense ratio sanity check: stabilized multifamily typically runs 35%–45% expense ratio (operating expenses ÷ EGI). If your model shows 30%, you're probably missing something. If it shows 55%, verify whether the OM included capital items in operating expenses.

Step 4: Capital items below NOI

These reduce cash flow available for debt service but are not operating expenses:

CFBD = NOI − TI/LC − Capital Reserves − Other Capital Items

• Tenant Improvements / Leasing Commissions: relevant during lease-up or turnover; often $0 for stabilized multifamily with low turnover
• Capital Reserves: $250–$350/unit/year for ongoing replacements (roof, HVAC, appliances)
• Renovation Capex (value-add): $8K–$25K/unit depending on scope; phased over the business plan timeline

For a stabilized core deal, CFBD ≈ NOI minus reserves. For value-add, CFBD is significantly below NOI in Years 1–2 because renovation capex and lease-up costs are real cash outflows.

Step 5: Debt sizing and schedule

Size the loan using the DSCR and LTV constraints from the financing summary (see our DSCR guide for the full workflow). Build a debt schedule:

Interest Expense = Beginning Loan Balance × Interest Rate
Principal Amortization = per loan terms (often 30-year amort on a 10-year term)
Total Debt Service = Interest + Principal
DSCR = CFBD ÷ Total Debt Service

For value-add deals with bridge financing:

• Acquisition loan: sized on in-place CFBD (often 60%–65% LTV)
• Renovation funding: capex reserve or separate construction draw
• Refi at stabilization: replace bridge debt with permanent financing sized on stabilized CFBD (often 65%–75% LTV)

The refi is a major return driver in value-add deals: you recapitalize at a lower rate and higher LTV once the asset proves stabilization.

Step 6: Returns build

Unlevered returns

Unlevered Cash Flows = NOI (or CFBD, depending on convention) − CapEx each year
Exit Proceeds = Forward NOI ÷ Exit Cap Rate
Unlevered IRR = IRR(unlevered cash flows including exit)

Levered returns

Equity Investment = Purchase Price + Closing Costs + CapEx − Loan Amount
Levered Cash Flows = CFBD − Debt Service − CapEx each year
Exit Equity = Exit Value − Loan Payoff at Exit
Levered IRR = IRR(equity investment, levered cash flows, exit equity)
Equity Multiple = Total Distributions ÷ Equity Investment

Exit cap rate assumption

The most consequential single assumption in the model. Common conventions:

• Conservative: exit cap = entry cap + 25–50 bps
• Aggressive: exit cap = entry cap (flat) — hard to justify unless market fundamentals are strongly improving
• Value-add: exit cap on stabilized forward NOI, often 25–75 bps wider than where stabilized comps trade today

Always show a cap rate sensitivity table: ±25 bps and ±50 bps around your base case. At a 5.0% cap, a 50 bps expansion to 5.5% cuts value by ~9% with NOI unchanged.

Step 7: Sanity checks before you present

Run these checks on every multifamily model:

1. Revenue: Does Year-1 EGI reflect actual occupancy, not stabilized?
2. Expenses: Are property taxes modeled on purchase price, not seller's assessed value?
3. NOI margin: Is NOI/EGI in the 55%–65% range for stabilized? If not, why?
4. DSCR: Is CFBD (not NOI) in the numerator? Does Year-1 DSCR reflect in-place cash flow?
5. Exit value: Is forward NOI capitalized (not trailing)? Is exit cap wider than entry?
6. Returns: Can you decompose the equity multiple into yield, growth, and cap rate movement?

What interviewers are actually testing

They're not testing whether you can build a spreadsheet — they're testing whether you understand which assumptions drive the answer and which traps indicate you haven't underwritten a real deal:

• Using market GPR with a flat vacancy rate on a 78% occupied asset
• Carrying forward seller's property tax expense on a reassessed purchase
• Capitalizing trailing NOI at exit instead of forward stabilized NOI
• Showing 1.40x DSCR on NOI when CFBD after reserves and capex is 1.05x
• Assuming flat exit cap on a value-add deal with no justification

Avoid these five and your multifamily pro forma will stand out in any REPE interview process. Then prove it on a live graded model — that's where SheetRank's deal flow turns theory into a scorecard recruiters can actually see.