Worksheet Commercial Real Estate Investment Assessment

In plain language: Records the property address, asset class, total square footage, year built, current ownership, asking price, and proposed closing date.

Common mistake: Entering the marketed price rather than the analyst's independent estimate of value. The assessment should document both and note any gap, or the investment committee has no basis to evaluate pricing.

In plain language: Calculates potential gross income from all leases, then deducts a vacancy and credit loss allowance and adds ancillary income to arrive at effective gross income.

Common mistake: Using the seller's stated rent roll without verifying lease commencement dates, expiration schedules, and rent escalation clauses. Expired or below-market leases significantly affect actual income.

In plain language: Lists all recurring operating costs — property taxes, insurance, maintenance, management fees, utilities, and reserves for replacement — with line-item totals.

Common mistake: Accepting the seller's operating expense statement without independently verifying property tax assessments, insurance quotes, and actual utility bills for the trailing 12 months.

In plain language: Calculates NOI as EGI minus total operating expenses, then divides by the purchase price to arrive at the going-in cap rate.

Common mistake: Comparing the going-in cap rate to a market average without adjusting for the property's specific age, condition, tenancy, and lease term. A higher cap rate on a distressed asset is not necessarily attractive.

In plain language: Documents the proposed loan amount, LTV, interest rate, amortization period, loan term, and annual debt service — and calculates the DSCR.

Common mistake: Modeling only one financing scenario. Assessments should include a base case and a stress-rate scenario (e.g., +150bps) to show DSCR resilience before lender conversations begin.

In plain language: Calculates pre-tax cash flow after debt service, divides by total equity deployed (down payment plus closing costs plus initial capex), and expresses the result as cash-on-cash return.

Common mistake: Excluding closing costs and initial capital expenditures from the equity denominator. Understating deployed equity inflates the cash-on-cash return and misleads the investment committee.

In plain language: Presents a matrix showing how NOI, DSCR, and cash-on-cash return change under varying vacancy rates, rent growth assumptions, and exit cap rates.

Common mistake: Running sensitivity on only one variable at a time. Real downturns typically compress rents and increase vacancy simultaneously — a combined stress scenario is the only meaningful test.

In plain language: Summarizes the submarket vacancy rate, recent comparable lease transactions, and recent comparable sales used to support the valuation conclusion.

Common mistake: Using comparable sales that are more than 24 months old or located in a different submarket. Stale or mismatched comps produce a valuation opinion that will not survive lender or equity partner scrutiny.

In plain language: States the analyst's formal recommendation — proceed, proceed with conditions, or decline — with supporting rationale, key assumptions, and the signatures of the preparing analyst and approving principal.

Common mistake: Omitting the conditions when recommending 'proceed subject to conditions.' An unsigned, unconditioned approval removes the mechanism for escalating deal-level issues before capital is committed.

A commercial real estate investment assessment worksheet is a structured analytical document used to evaluate a commercial property acquisition before committing capital. It captures property identification data, verifies income and expenses, calculates key return metrics such as NOI, cap rate, DSCR, and cash-on-cash return, and concludes with a formal signed investment recommendation. It functions as the primary due diligence record for investment committees, lenders, and equity partners.

At minimum, a complete assessment covers net operating income, going-in cap rate, effective gross income, operating expense ratio, debt service coverage ratio, loan-to-value ratio, cash-on-cash return, and a sensitivity analysis showing how those metrics change under stress assumptions. For longer hold periods, an IRR and equity multiple projection based on a modeled exit should also be included. Missing any of these leaves gaps that lenders and equity partners will immediately identify.

A cap rate — capitalization rate — is NOI divided by the property's purchase price, expressed as a percentage. It measures how much income a property generates relative to its cost, independent of financing. A lower cap rate means you are paying more for each dollar of income, which is typical in high-demand markets with strong rent growth prospects. A higher cap rate means more income relative to cost but often signals higher risk, older vintage, or weaker market fundamentals. Comparing the going-in cap rate to the current market range for comparable assets is the fastest way to assess whether a deal is fairly priced.

Most commercial lenders require a minimum debt service coverage ratio of 1.20x to 1.25x in the base case — meaning NOI must be at least 20–25% higher than annual debt service. SBA loans and certain agency programs may require 1.25x or higher. Lenders also typically stress-test the DSCR at a rate 150–200 basis points above the quoted loan rate. An assessment that shows DSCR falling below 1.20x under any plausible scenario should flag this as a material risk before lender conversations begin.

The assessment itself is primarily an analytical and internal governance document rather than a binding contract between buyer and seller. However, when signed by the analyst and an approving principal, it creates an internal accountability record and may be incorporated by reference into an investment committee resolution or partnership agreement. It does not replace a purchase and sale agreement, letter of intent, or loan commitment — all of which are separate binding documents. Consider consulting a real estate attorney to confirm how the signed worksheet interacts with your fund or entity governance documents.

A due diligence checklist tracks the completion status of investigative tasks — title search, environmental report, lease review, physical inspection — without quantifying their financial impact. An investment assessment worksheet translates the findings of due diligence into financial metrics and a formal recommendation. The two documents are complementary: the checklist confirms that all diligence items were addressed; the assessment turns those findings into the numbers that drive the go or no-go decision.

Always use a vacancy rate sourced from submarket-level data for the specific asset class — office, retail, industrial, or multifamily — not a city or regional average. Submarket rates can differ from metro averages by 5–10 percentage points. For a stabilized property, using the current submarket vacancy rate as the base case and adding 5 percentage points for the downside scenario is a commonly applied standard. For a value-add acquisition, the actual current vacancy at the property is the starting point, with underwritten stabilization assumptions documented and defended.

The financial analysis sections can typically be completed by a qualified analyst or investor using this template. However, legal review is advisable when the assessment will be incorporated into an investment committee resolution, when it will be shared with equity partners or co-investors under an operating agreement, or when it is intended to satisfy a lender's underwriting submission requirements. A real estate attorney or CPA can also confirm that the expense and income assumptions comply with applicable tax treatment and disclosure obligations.

The initial assessment should be completed before submitting a letter of intent. It should be updated whenever material new information emerges during the due diligence period — for example, if a lease abstract reveals a below-market renewal option, if the physical inspection identifies deferred maintenance, or if interest rates shift materially between underwriting and closing. The version submitted to the investment committee or lender for final approval should reflect all findings from the full due diligence period, not just the pre-offer assumptions.