When given the proper level of attention and respect, one of the most complicated and time-consuming tasks related to real estate acquisitions is the financial modeling and underwriting process.
While other tasks such as due diligence are certainly involved, most of those tasks are more about factual data and confirming information, which can certainly be complicated, but there simply isn’t as much uncertainty involved as there is when underwriting a deal.
Also, because underwriting includes evaluating an opportunity relative to the overall market, there are external forces to consider that are ever-changing throughout the acquisitions process. The process of evaluating the financial prospects of a deal also rely heavily on the due diligence materials, but in many cases the early stages of underwriting (often called “deal screening”) are very cursory in nature.
Much like peeling the proverbial onion, real estate analysis gets more complex and difficult as it moves forward, however throughout the process more confidence is gained in the numbers. Whether standalone Microsoft Excel or some other specialized software package, most real estate financial modeling software is fairly single-purpose.
Users can enter the results of rent and sales comps research, and they can input the expected effects of demographic analyses, but few actually let you track those comps or demographics, and even fewer let you include calculations based on those data, or easily import free-form notes or other deal-related information.
We built the CRE Suite as a tool for real estate investment and development teams to help every aspect of their team-oriented process. While most other real estate software products are trying to compete over which one can calculate value to the most decimal places, we focused instead on solving the real-world problems faced by acquisitions teams.
The CRE Suite model library and underlying real estate underwriting engine is the core of our product precisely because it is crucial to get accurate numbers and iterate easily between scenarios while in the evaluation phase of the acquisitions process. Keep in mind that real estate financial modeling is not an exercise in performing difficult calculations.
Most of the math involved is simple and straightforward. The problem is that there tends to be a lot of information that is delivered in differing formats, and it doesn’t all come at once. Initial deal screening may include little more than a rent roll and operating statement, and that information could come all in a single clean Excel file, or it could come on note-card-sized fuzzy hard-copies that are reminiscent of a 1980s fax machine.
Or anything in-between. And that’s just the first phase of the deal screening process. As time goes on, not only more information comes to light, but time also elapses. So if an analyst is looking at a single deal over the course of 3 months from initial screening through getting closing scheduled, new financials will typically be submitted at the close of every month along the way.
“Many people tell us ‘every deal is different and that’s why I like Excel.’ We hear that a lot. It’s true that no two deals are the same, but the CRE Suite has the flexibility to handle both of them while still giving you the efficiency and standardization you need to get each deal done. We do lots of demos that start off with the above quote, and by the end are saying “wow, this does everything I need” …no other product has this effect.” – Max Garbus, Product Manager, CRE Suite
So, if you compound the issues with underwriting a single deal numerous times as new information is submitted, with the fact that the same deal needs underwritten repeatedly as new financials are released, and it is rapidly apparent that the issue here is not pure calculation but but instead has a lot more to do with how users can manage this flow of information without making critical mistakes in what would otherwise be simple calculations along the way.
The CRE Suite handles both evolving information flows and historical data with ease. It is easy to start with a back-of-the-napkin calculation in any of our real estate financial models and add details as they become available. We also added the functionality to drop in historical financials and “bucket” or categorize the data according to your own customized standard income and expense line items.
This is important because it is extremely rare for a buyer of a property to have the exact same expense structure as the seller, and it is also rare for both parties to use the same line items and categorize the individual expenses inside those line items similarly.
These problems exist on every deal, but they are particularly exacerbated on off-market deals that don’t get vetted first through a reputable and professional broker. In fact, that’s why some of the top brokers in the country use the CRE Suite as well. It is designed to optimize the iterative deal evaluation and review process from screening to closing, and beyond.
