You’re looking to invest in commercial real estate. What are the best analysis tools for your portfolio?

In analyzing Retail Triple Net (NNN) leases, it's particularly important to focus on the unit economics of the tenants. These leases place the responsibility of property expenses on the tenants, making their financial health crucial for the stability of the investment. By examining each tenant's revenue and cost structure, you gain insight into their ability to sustain these expenses and, by extension, the reliability of your rental income. This analysis is fundamental in identifying the investment's potential risks and rewards, ensuring a more informed and strategic approach to commercial real estate investment in the Retail Triple Net sector.

You should build a custom pro-forma calculator that plugs in information from the T-12 and rent rolls. It's best to get this info directly from the owner, but software like Yardi Matrix and reonomy can be used to guess pretty accurately.

We built our own custom multifamily underwriting model. We found errors in other models out there and many of them lacked the capabilities we needed. Building our own proprietary model is beneficial because we know exactly how the model is working. We want to give our investors confidence that we are using a robust, error checked model to calculate their returns.

Buying commercial real estate is like business and piece of land that you can generate profit from. There needs to be well defined business plan execution on how the valuation can be increased to sell the asset at profits. Understanding the financial statements along with the leasing rent roll are the guiding inputs to any underwriting tool. The underwriting tool should be able to capture the realistic assumptions on current situation and project how net operating income can be improved. Post acquisition, the business plan needs to be tracked with the original underwriting numbers to keep the project on track.

When analyzing commercial real estate for your portfolio, some essential tools include: *Cash Flow Analysis*Net Operating Income (NOI)*Capitalization Rate (Cap Rate)*Comparable Market Analysis (CMA)*Internal Rate of Return (IRR)*Debt Service Coverage Ratio (DSCR)*Risk Assessment Tools*Market Research Tools*Property Management Software*Financial Modeling Software*By leveraging these tools, you can make informed decisions and optimize your commercial real estate portfolio for long-term success.

Taking a look at the portfolio as a whole annually or semi-annually gives valuable insights. 1. Helps document global cash flow, complete Real Estate Owned (REO) statement, and global DSCR if lenders require that information for new deals. 2. Return on Equity (ROE) examined regularly can give insights when a refinance or sale is a better use of equity than sitting in a deal. 3. Limited partner investors especially need to track portfolio valuations and performance to maintain accredited investor status based on net worth. Whether you use spreadsheets or a purpose-built dashboard, knowing your numbers at a glance helps inform bettering decision making and opportunity evaluation.

In order to transition from residential real estate to commercial real estate you should get educated, find a mentor and be patient. While the foundation begins with the same real estate license the building is a different blueprint. Start with a good commercial real estate course. Learn the different aspects of commercial real estate and then narrow down to what works best for you. Find a mentor! There are great people who are willing to help you with their expertise! Listen to podcasts, read blogs, get to know the commercial landscape. Be patient, commercial real estate can be a long process.

When you're managing a portfolio of CRE properties, the right analysis tools are critical for monitoring and optimizing performance. These tools not only help track the performance of individual properties but also provide a comprehensive view of your entire portfolio. So perhaps most importantly, you need a portfolio management solution. This type of software allows you to monitor various aspects of your properties, including financial performance, lease management, and operational metrics. These platforms usually come with dashboard capabilities, giving you an at-a-glance view of your portfolio’s performance.

Performing a portfolio analysis involves evaluating the performance, risk, and diversification of your commercial real estate assets to identify optimization opportunities. This analysis helps in making informed decisions on acquiring, holding, or selling properties to align with your investment goals, maximize returns, and manage risk effectively.

Banks and lenders are required to monitor their concentration risk and re-underwrite each property based on updated financials annually. You have a covenant in your loan documents which requires you to provide them this information upon request. So, there is no reason why you shouldn’t be doing the same for your own investments. Make sure you are at market or better rents, you have economies of scale and are doing what you can to increase profitability per property and across your portfolio. Software really helps as you scale because it also incorporates in to your tax and bookkeeping software.

Scenario analysis is critical in 3 key areas: 1. Evaluate Market Change: Assess how market shifts, including economic conditions, demographic changes, & industry trends, might impact your portfolio, informing decisions about asset management. 2. Assess Financial Impacts: Gauge the effects of fluctuations in interest rates, occupancy rates, rent levels, operating expenses, & capital expenditures on your portfolio's financial health, helping pinpoint properties prone to market sensitivity & opportunities for financial optimization. 3. Explore Strategic Decisions: Test various strategic options, including refinancing, asset sales, or acquisitions, to align with your long-term objectives & risk profile.

We have various sensitivity analyses built into our model. Property level and investor level. Additionally, we always calculate various performance metrics like break even occupancy, DSCR, GRM, and YOC to give us a robust look at the deal.

This is going to be a bit of shameless plug but you can likely get no-cost consulting from a small business development center in the area you are looking to invest. The consultants there can assist with your first scenario analysis and help with learning to model in Excel before deciding on a dedicated CRE platform for more detailed metrics.

Los análisis de escenarios posibles de rentabilidad, que en mi caso yo siempre me enfoco en los escenarios mas pesimistas, esto me permite tener un piso en el peor de los escenarios posibles y crear una falsa expectativa en el inversionista sobre retornos inflados o que no sean continuos como el lo esperaría.

Scenario analysis is critical to any underwrite and often used as a great way to challenge our initial assumptions. If the potential investment is not achieving stronger risk adjusted returns then you should look elsewhere. There are 2 key challenges with scenario analysis 1 is to ensure that the existing contingency in your model is not overburdening your underwrite and creating layers on layers of contingency to be uncompetitive. The second challenge is that your base level forecast is not already either too blue sky or too conservative.

Sensitivity analysis is a great guide to isolate key input and value drivers. However as with any forecasting scenario the model is only as good as the supporting assumptions and the more assumptions you make the more likely you are to be incorrect.

Sensitivity analysis is my compass for navigating the landscape of downside investment scenarios, and key in risk mitigation in my investments. My process involves stress-testing the forecasted returns by adjusting model inputs for potential adverse factors, such as economic downturns or market fluctuations. Several of the key inputs to run sensitivity analysis on include interest rates, rent growth, occupancy, and lease-up timelines. By assessing how these variables could impact returns, I gain insights into potential vulnerabilities and learn where to focus additional due diligence efforts.

By using sensitivity analysis, you can pinpoint key variables affecting your commercial real estate portfolio's performance, enabling you to model various scenarios and their impacts. This insight allows for strategic risk mitigation, such as diversifying properties or securing fixed-rate financing, to ensure resilience against market fluctuations.

Sensitivity analysis is my go to for investment. It brings all the factors to light. E.g. ROI, cost of finance, culture, risk threshold, capital and reflex (response of the prospective property), the market as well as global trends.

Benchmarking is an essential and valuable tool in evaluating a portfolio's performance versus the market. It is also a double-edged sword as it can be imperfect. For example, portfolio valuations among NFI-ODCE members may differ from reality depending on a variety of factors such as how recently the valuations were performed or how volatile real estate markets are. We should all take the time to ensure we are utilizing benchmarking analysis methodologies that align with the strategic, product type, and geographic focus of our respective portfolios.

Utilize benchmarking analysis by comparing your commercial real estate portfolio's performance metrics, such as occupancy rates, rental income, and operational costs, against industry standards or similar properties. This comparison can highlight areas for improvement and opportunities for strategic adjustments to enhance asset value and investment returns.

Nowadays there are lots of tech tools to help evaluate real estate portfolios in a much more holistic way than before. However, lots of data can be daunting and confusing, so prior to defining which tools to use or data to collect, it’s key to define a portfolio strategy that is aligned with the business goals and vision.

We use Power BI for visuals and I can’t tell you how powerful it can be. Once you build a report, it can alert you to trending way before most people would otherwise be aware. Vacancy factor per property and overall portfolio that can be stratified by geography is a good example. Cost of R&M over the same stratification is also good. But you can dive down in to submarkets and determine how things like utilities vary for better analytics on new investments too. Moody’s is also fantastic for this as they have acquired REIS’ legacy data.

If your portfolio, scenario, and or sensitivity analysis is being performed in Excel then Power Bi is a good tool to generate reports. You can also use some AI tools to build dashboard in Excel pretty easily. Make sure you have a full understanding of how to link exterior databases into an Excel file and are comfortable with graphing and building your own if you're just starting. If you have a large CRE portfolio honestly just use the dashboard in the CRE software, you are comfortable with. Your lender will run some basic sensitivity analysis in your underwrite so make sure you allow for assessment of vacancy expense, mgmt. expense, and maintenance expenses as your lender will stress your loan with these at a minimum

In the world of commercial real estate investment, I've found that mentors and continuous learning are often undervalued but incredibly powerful analytical tools. Personally, seeking guidance from experienced professionals has given me real-world insights into market dynamics, property evaluation, risk assessment, and portfolio management. Additionally, ongoing education and networking have provided me with diverse perspectives that complement traditional analysis, enriching my decision-making and contributing to my long-term success.

I’d also like to add that when you invest recruit your dream team. What I mean is not everyone has the right seat on the bus. Find a deep bench of team mates that enjoy all aspects of the deal process. This looks like ? deal finder ? underwriting specialists ? loan specialists ? property manager ? contractor and estimator for value add contributions ? operations and project managers ? investor relations ? book keeper ? CPA and tax specialist Recruit your dream team ????

TheAnalyst? PRO: This software provides a comprehensive view of a property’s transaction history, including details on property transfers, loans, and foreclosures. It’s a valuable tool for evaluating investment properties. PropertyMetrics: PropertyMetrics simplifies the process of creating and sharing real estate proformas online. It helps you analyze cash flow projections, financial metrics (such as IRR and NPV), and generate presentation-quality reports. ARGUS Enterprise: ARGUS is widely used in the commercial real estate industry. It’s a comprehensive solution for property valuation, cash flow modeling, and investment analysis.

Get your team in place. You can have all the data and all the software you need but the key is to get your team (accountant, financial advisor, surveyor, solicitor, lender etc) in place to be advising you at am early a stage as possible as that will be worth its Wright in gold in the long run

The End User. Most evaluations focus only on statistics and data and completely overlook the end user. Do not underestimate the affects that changes in end user behaviour may have on the demand for B2B sector RE (industrial, logistic, office, ports). Also, positive market evaluations can often be the consequence of risky investing and/or past social, economical and cultural end user influences. Example: Some of the RE products developed due to COVID may or may not be fully embraced long term. Understanding which, would take evaluating end user behaviour.