Blue West Capital utilizes a dynamic underwriting process in our seller and buyer representation services. Our skilled team analyzes a property to determine whether or not it's a good fit for your portfolio and to help provide sellers with an accurate valuation of their asset. The goal of underwriting is to minimize risk and maximize value as much as possible so you can make an informed investment decision.
At Blue West Capital, we take a data-driven approach to underwriting. Our team gathers as much information about a property as possible and then runs it through our proprietary underwriting process. This process allows us to accurately assess an asset's upside, risks, and potential rewards.
Step 1: Review Data
We collect lease data, rent roll information, and income statements provided by the property owner, whether that's our client or the owner of a prospective acquisition. We read through the provided leases and reconcile them with the rent roll to ensure rent is being paid according to the agreed upon contracts.
Step 2: Argus Model
With the data collected and reconciled, we enter the information into an Argus model. Argus modeling allows us to break down the financials of an asset and takes inputs, including the lease term, rental rate, rental escalations, and renewal options. Then we add in both operating and non-operating expenses and any other additional revenue sources (such as coin operated laundry). The Argus modeling software is our go-to resource for creating cash flow projections for both simple and complex transactions that include multiple leases.
Step 3: Create a Recovery Structure
In varying lease structures, some or all property expenses are reimbursed by the tenant. The Recovery Structure defines what expenses are going to be reimbursed.
Step 4: Design Inflation Assumptions
Inflation impacts nearly every aspect of our lives, and real estate is no different. To provide accurate projections, we create inflation assumptions based on current economic conditions that can be applied to our modeling to get more accurate predictions.
Step 5: Collate Sale and Lease Comparables with Costar
Costar is a comprehensive online database of real estate information, including current and past sale and lease listings. Our team leverages Costar's data to determine market rental rates in the asset's immediate trade area. The market rent is then applied in our Market Leasing Profiles of each tenancy when each lease term expires. For example, suppose a lease term in a strip mall our client is considering purchasing is expiring in two years. In that case, it's essential that our modeling considers the potential vacancy cost and achievable market rent of the tenancy.
Step 6: Consult with Property Management Companies, Owners, & Brokers
A side effect of a tenancy going to market is leasing costs. Our underwriting team consults with local property management companies, property owners, and brokers to determine the estimated leasing commissions. Additionally, we gauge if tenant improvements expenses will be required and their estimated cost.
Step 7: Export Cash Flow Models
For ease of use and communication with all interested parties, we export the rent roll and our detailed cash flow models into excel.
Step 8: Create a Custom 10-Year Cash Flow Report
Using the modeling and data thus collected, we create a custom 10-year cash flow report. This report encompasses an investment section that includes debt assumptions. The debt assumption inputs can be altered to see possible cash-on-cash returns after deducting the below-line expenses at differing debt ratios.
This report also includes a section for the 6th year and 11th year residual value to provide clients with an outlook of the returns on a future sale.
Step 9: Create a Custom Rent Roll, Rollover Schedule, and Analysis Summary
The final step in our underwriting process is to customize a rent roll, rollover schedule, and analysis summary in combination with the 10-year cash flow projections. This final product is what we share with our clients and investors, so they get a detailed understanding of an asset's performance.
Blue West Capital's detailed underwriting process is essential to Blue West Capital's commitment to providing clients with the relevant data they need to make informed decisions. We heavily invest in leading market data and maintain collaborative relationships with real estate professionals to ensure our projections are accurate based on the current market and lead to client success. Our dynamic underwriting gives clients a competitive advantage in commercial real estate investing.
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