A full commercial underwriting answers one question: at what price, and with what financing, does this property produce the return you need, and how badly does that answer break if the assumptions are wrong. To answer it, the package rebuilds the property's income from its leases, subtracts what it costs to run, projects that forward over a holding period, layers the debt on top, and tests the result against the assumptions that move it most. A package that skips any of those steps is a valuation, a spreadsheet or an opinion, and each of those has its uses, but it is not an underwriting.
This page describes what the work usually contains. It is not investment, lending or legal advice. If a lender or an investment committee is the audience, ask them which format and which assumptions they require before the work starts, because their template decides more of the result than most people expect.
Income: what the property actually earns
The starting point is the rent roll: every lease, its rent, its start and end dates, its escalations, and who pays which expenses. From it the underwriting builds gross potential rent, then takes off vacancy and credit loss to arrive at effective gross income.
Two questions decide most of the income section:
- Is the in-place rent above or below market? A building let below market has upside at each rollover; one let above market carries risk at every lease that ends.
- When do the leases end? A rollover schedule shows how much of the income is exposed in each year of the hold, which drives both the vacancy assumption and the leasing costs below.
Expenses and net operating income
Operating expenses are the costs of running the building: taxes, insurance, utilities, repairs, management, and the rest. Income minus operating expenses is net operating income (NOI), the single number most of the analysis rests on.
Debt service is not an operating expense and does not come off NOI. Capital items, such as a new roof or tenant improvements for a new lease, are usually carried below NOI as separate reserves or leasing costs, so that NOI stays comparable between buildings.
Value and the cap rate
A capitalisation rate is NOI divided by value. Read the other way, value is NOI divided by the cap rate: a building with $1,000,000 of NOI at a 6.5% cap rate is valued at about $15.4 million. An underwriting uses a cap rate twice: once to sense-check the entry price against comparable sales, and once at the end of the hold to estimate what the building sells for. That second one, the exit cap rate, is one of the assumptions the result is most sensitive to, and a careful package sets it no lower than the entry cap rate unless it can say why.
Debt: LTV and DSCR
Most acquisitions are financed, so the package models the loan: amount, rate, amortisation and term. Two ratios decide whether a lender will make it:
- Loan-to-value (LTV): loan amount divided by value. It caps how much can be borrowed against the price.
- Debt service coverage ratio (DSCR): NOI divided by annual debt service. A lender sets a minimum in its terms, often somewhere around 1.2x to 1.35x, and the loan is sized so the property's NOI clears it. When NOI is thin, DSCR, not LTV, is usually what limits the loan.
The underwriting shows both, because a loan that passes one and fails the other does not close.
The cash flow and the returns
With income, expenses and debt in place, the package projects the property year by year, or month by month, over the holding period, then adds the sale at the end. From that projection come the return measures investors compare:
- Unlevered and levered IRR: the annualised return on the whole property, and on the equity after the loan.
- Equity multiple: total cash back divided by equity put in.
- Cash-on-cash return: annual cash flow after debt service divided by equity.
The same projection can be run backwards: set the return you need and solve for the price. That is how a bid is usually derived from a target IRR, and it is only as good as the assumptions behind it.
Sensitivity: the part that makes it an underwriting
A single projection is a forecast. An underwriting shows how the result moves when the assumptions do, usually for the handful that matter most: rent growth, vacancy, the exit cap rate and the interest rate. A table that shows the IRR falling from 14% to 7% when the exit cap rate moves half a point tells a buyer more than the 14% ever could.
What usually sits beside it, and is not part of it
Due diligence is a separate piece of work that answers different questions: title and encumbrances, zoning and permitted use, environmental condition, the physical state of the building, and litigation. An underwriting assumes those answers; the diligence checks them. When a package mixes the two, make sure you know which figures were checked and which were assumed.
What an underwriting is not
- Not an appraisal. An appraisal is a valuation signed by a licensed appraiser whom a third party can hold responsible. An underwriting is an analysis for the buyer's own decision. If a lender, a court or a tax authority needs to rely on a value, they need an appraisal.
- Not a lender's credit approval. A lender runs its own underwriting to its own standards. Your model shows whether the loan should work; only the lender decides whether it will.
How we handle an underwriting request
Every request gets a written answer, and a file is not promised in advance: most of our runs return the analysis as an interactive report and text rather than as a document (source: company_products, as of 2026-09-17). We do not model the rules of any jurisdiction, so questions about how a local rule treats a lease, a tax or a floor area are for someone who practises there (source: company_geography, as of 2026-09-14). The figures in an underwriting are only as good as the rent roll and the expense history behind them, so the most useful thing you can bring is the actual leases and the last twelve months of operating statements.