A lender's first read of a loan package is a tying exercise. Three seller documents arrive: the broker's offering memo (OM), the rent roll and the trailing twelve months of income and expenses (the T-12). On this package, a 50-unit loft conversion that was being marketed for sale, the rent roll and the T-12 agreed with each other and with the memo's in-place rent. The memo's in-place net operating income (NOI) did not agree with anything.
The building's name, location and tenants are removed, the city is not named, and every money figure is scaled by one constant factor, so ratios and ties are unchanged. The full sample carries the page or cell behind every figure.
Loan package questions, answered
What is the difference between in-place NOI and T-12 NOI, and which do lenders rely on?
In-place NOI is the income the offering memo says the building earns today. T-12 NOI is what the books show for the last twelve months, so a lender starts from the T-12 and the rent roll and treats the memo figure as a claim to test. On this package the memo said $614,475, the T-12 said $466,880, and Titleman's lender NOI was $517,544.
What red flags should a lender look for in a conversion loan package?
Look first for expense cuts the T-12 does not show, an insurance line with no bound quote, and a tax bill that looks abated. Here the unsupported expense cuts were $69,986 of the $147,595 gap, insurance was underwritten at $60,907 against $98,583 paid, and taxes were $28,014 a year, or $560 per unit. Lease expiry (29 of 48 leases by July 2026) and only 6 of 50 units with a market rent were ranked medium.
How do I check a borrower NOI against the rent roll and T-12?
Tie the documents to each other first, then walk the memo against the T-12 line by line. Here the rent roll and the T-12 agreed on January rent ($70,731), units (50, 48 occupied) and total expenses ($364,398), so the whole $147,595 gap sat in the memo's pro forma: $77,609 of income and $69,986 of expense cuts. Then rebuild NOI from run-rate rent, vacancy and credit loss, actual expenses and reserves.
What documents should a 50-unit conversion loan package include?
At minimum, the offering memo, the rent roll and the T-12. This read also sent five requests back to the borrower: a bound insurance quote with loss runs, the tax abatement certificate with its end date, invoices for the unit renovations split between capital and operating expense, the leasing plan and renewal offers for the near-term expirations, and the deposit ledger and market rent by unit.
The NOI ladder
| Basis | NOI | Source |
|---|---|---|
| T-12 actual | $466,880 | February 2025 to January 2026, includes lease-up |
| Titleman lender NOI | $517,544 | Run-rate income, 5.5% vacancy and credit loss, actual expenses plus reserves |
| Run-rate (last three months x 4) | $546,154 | T-12, November to January |
| Memo "in-place" | $614,475 | OM p.33 |
| Memo "stabilized" | $738,161 | Post-renovation, OM p.33 |
The memo's in-place figure is 32% above the trailing actual and 19% above the NOI we would underwrite. The gap to the T-12 is $147,595 a year. How much of it a loan should carry is the credit team's call.
Where the extra $147,595 comes from
Of the $147,595, $77,609 is income and $69,986 is expense cuts. Almost half of the lift (47%) is cost the building has not shown it can save.
| Line | T-12 actual | Memo in-place | Effect on NOI | Supported by the file? |
|---|---|---|---|---|
| Rental income (net) | $774,170 | $838,833 | +$64,663 | Mostly. The current rent roll annualizes to $848,772; the T-12 is low because of lease-up early in the year |
| Parking | $30,641 | $43,587 | +$12,946 | Partly. January billed $2,980, or $35,760 a year |
| Insurance | $98,583 | $60,907 | +$37,676 | No. Needs a bound quote |
| Maintenance | $58,356 | $32,625 | +$25,731 | No. See below |
| Contract services | $41,742 | $23,925 | +$17,817 | No. See below |
| Management fee | $40,862 | $27,267 | +$13,595 | Only with a new manager at 3%. The current fee is 4.9% of income |
| Electric | $22,784 | $17,912 | +$4,872 | Doubtful. December and January bills match February and March |
| Payroll | $15,377 | $43,500 | -$28,123 | Conservative. The memo's "payroll" is leasing commissions (T-12 account 66010); there is no on-site payroll today |
| Taxes | $38,251 | $39,833 | -$1,582 | See the abatement finding below |
| NOI | $466,880 | $614,475 | +$147,595 | Income +$77,609; expense cuts +$69,986 |
Three findings a credit officer would send back
1. The expense cuts are not in the T-12. The memo halves maintenance and contract services, from $100,098 to $56,550, and says February to May were inflated by renovating vacant units. In the T-12, repairs, turnover and contract lines come to a monthly average of $8,242 from February to May and $9,286 from June to January. The months after the renovation cost more, not less.
2. Insurance is underwritten at a quote nobody has shown. The actual premium is $98,583, or $1,972 per unit. The memo uses $60,907. Until a bound quote says otherwise, the premium paid is the number to underwrite.
3. The taxes look abated. Real estate tax is $28,014 a year, or $560 per unit, for a 50-unit building after a redevelopment. That level is consistent with a tax abatement. If it ends inside the loan term, taxes reset to the full assessment. Ask for the abatement certificate and its end date.
Two more were ranked medium. 29 of the 48 leases expire by July 2026, 15 of them in April and May, so the next six months decide whether the run-rate holds. And only 6 of 50 units carry a market rent in the rent roll, so the memo's $103,878 of below-market leases cannot be tested from the seller's own data.
What did tie out
The check matters as much for what held. The rent roll shows monthly rent of $70,731 on 48 units, an average of $1,474, which is the memo's figure. January rental income in the T-12 equals the rent roll total to the dollar. Units and occupancy agree (50 units, 48 occupied, 96%). Total expenses are $364,398 in both the memo's T-12 column and the T-12 itself. Tie-outs like these tell you the papers agree with each other. They do not tell you what year two of the loan looks like, which is why the dates inside the file (lease ends, the abatement, the insurance policy) are worth asking about first.
What the gap does to loan size
Arithmetic only, not a loan recommendation: each NOI at a 1.25x coverage ratio with 30-year amortization, and at a 9% debt yield. The rates are illustrative.
| NOI basis | NOI | 1.25x at 6.25% | 1.25x at 6.75% | Debt yield 9% |
|---|---|---|---|---|
| T-12 actual | $466,880 | $5.06M | $4.80M | $5.19M |
| Titleman lender NOI | $517,544 | $5.60M | $5.32M | $5.75M |
| Run-rate, last three months x 4 | $546,154 | $5.91M | $5.61M | $6.07M |
| Memo in-place | $614,475 | $6.65M | $6.32M | $6.83M |
At 6.75%, the distance between the memo and our number is $96,931 a year of NOI and about $1.0 million of loan. Titleman's lender NOI takes full-occupancy rent of $882,180, less 5% vacancy and 0.5% credit loss, other income at the last-three-month run-rate ($61,332), and the T-12 expenses as reported plus $261 per unit of replacement reserves.
Questions the read sends back to the borrower
- A bound insurance quote for liability and property, and three years of loss runs.
- The tax abatement certificate, the assessed value with and without it, and the end date.
- Invoices for the February to May 2025 unit renovations, split between capital and operating expense.
- The leasing plan and current renewal offers for the 15 leases ending in April and May 2026.
- The deposit ledger by unit, and market rent by unit from the manager.
How this was produced
Titleman AI read the three seller documents end to end and tied each figure against the others, with every finding linked to the page or cell it came from. This was a sample run on a real marketed property. It reads the seller's documents and nothing else, and it is not verified against third-party records. Whether the insurance quote exists, or when the abatement ends, is still a question a person has to ask.
What this does not replace
It is a first read, not a credit decision. Titleman is not a broker, an appraiser or a law firm, and what it produces is a draft for a licensed professional to review.
Run it on your own package
Send the package as it reached you, and the same read comes back with every figure tied to its page or cell. Request a demo and we will run it on a file of your kind, or see the lender check sample first.
Prepared by Titleman AI, on behalf of the Titleman team.