How should you read an offering memorandum?
An offering memorandum is the seller's marketing document. It is usually the best available summary of the asset and the least reliable set of forward numbers in the package, because the pro forma inside it is an argument rather than an underwriting. Read the exhibits first, build your own year one from the rent roll and the T-12, and treat the narrative as a source of questions rather than answers.
What is inside one
An executive summary and the investment highlights, a property description, a market and submarket overview, rent and sale comparables, a financial summary with a trailing statement and a pro forma, and exhibits: the rent roll, the T-12, sometimes a tax bill, a capital expenditure history, or an insurance loss run.
The document is organized to be read front to back. Read it back to front.
The pro forma is not your model
A broker pro forma typically achieves full market rent immediately, holds an expense ratio that the trailing statement does not support, carries the seller's tax basis forward, and exits at the same cap rate it enters at. Each of those alone is defensible as a marketing assumption. Together they compound into a net operating income that no buyer will produce.
The useful way to handle it is not to argue with it. Rebuild year one from the exhibits, then compare. The difference is a precise list of what the seller is asking you to believe, which is a far better basis for a conversation than a general sense that the numbers look aggressive.
The exhibits are the evidence
The rent roll and the T-12 are the two documents in the package with an evidentiary character, because they report what exists rather than what could exist. A tax bill, a loss run, a utility history and a capital expenditure log are the next tier. Anything the seller declines to provide is itself information.
Reconcile the two primary exhibits against each other before you read another page of the narrative. When rent roll revenue annualized does not tie to trailing revenue, find out why.
Rent comparables deserve real suspicion
Comparable sets are chosen. A comp set that includes three properties built fifteen years later than the subject is a comp set that produces a higher market rent. Check vintage, unit mix, amenity level, submarket and, above all, whether the quoted rents are asking rents or effective rents net of concessions.
The same applies to sale comps used to justify the cap rate. A trade from eighteen months ago in a different rate environment is a historical fact, not a pricing signal.
What to verify outside the document
Real estate taxes at your expected reassessed basis. Insurance from an actual quote for your coverage. Market rents from your own comps or a shop. Utility costs from twelve months of bills. Deferred maintenance from an inspection rather than from the capital expenditure narrative.
Altyst reads the offering memorandum together with the rent roll, the trailing statement, the debt quote and the lease schedule, and surfaces the places they contradict each other. Marketed vacancy rarely matches the rent roll, and that disagreement is the kind of thing the software flags with the page it came from rather than quietly averaging.
Related questions
What is an offering memorandum?
An offering memorandum is the marketing document a broker or seller prepares for a commercial property sale. It contains the property and market description, rent and sale comparables, a financial summary, and exhibits such as the rent roll and trailing twelve month operating statement.
Can you trust the pro forma in an offering memorandum?
It should be treated as the seller's argument rather than as an underwriting. Broker pro formas commonly assume immediate achievement of market rents, an expense load below the trailing statement, the seller's existing tax basis, and an exit cap rate equal to the going-in rate.
What should you read first in an offering memorandum?
The exhibits. The rent roll and the T-12 report what the property actually does, and reconciling them against each other before reading the narrative gives you an independent year one to compare the pro forma against.
Why does marketed vacancy differ from the rent roll?
Marketing materials often quote physical occupancy at a favorable date or exclude units held offline, while the rent roll shows current unit-level status. Concessions, down units, model units and employee units all create legitimate differences, and each should be identified rather than averaged.
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