Client Background
The client is a capital allocator considering a multifamily deal with a heavy value-add component. The sponsor was a new relationship to them, and while the deal looked promising on paper, the complexity of the business plan prompted them to seek a deeper review.
Results and Progress
Through the Deal Review Service, the underwriting was carefully evaluated. The analysis found that the rent growth assumptions were inconsistent with the market’s historical performance. Additionally, the sponsor’s plan to stabilize the property was highly aggressive — both in terms of unit renovations and occupancy ramp-up.
When these assumptions were modestly adjusted to reflect market conditions, the deal flipped from a projected profit to a net loss. Further scrutiny revealed that sponsor fees were layered in heavily, further eroding investor returns. Based on this analysis, the client chose not to move forward with the investment. And I forgot to mention that there was a preferred equity tranche so the LP capital raised upfront was essentially going to support the interest payments to the Pref Equity partner.
They later shared that this was the “best diligence money” they’d ever spent and appreciated the clear, objective insights that helped avoid a bad investment.
Client Qualities and Challenges
The client was proactive and skeptical – a necessary combination when reviewing deals with new or unproven teams. Their willingness to verify before they trust made all the difference.
Impact and Experience
This analysis likely saved their capital and gave them a repeatable process for evaluating future deals more confidently. They now use the Deal Review Service as a core part of their diligence process.
Summary and Next Steps
This case highlights how adjusting just a few assumptions can flip a deal and why it is worth the time to look under the hood before deploying capital.
Vessi Kapoulian,
Breaking down multifmaily underwriting one step at a time to create educated and empowered investors
P.S. 1
If you need a second set of eyes on a deal, I am here to help. Send me a message.
P.S. 2 And if you are ready to do a deeper dive and learn how to analyze deals on your own from beginning to end with confidence and ease, go to masteringmultifamilyunderwriting.com or DM me on how to get started today.