The Pro Forma and the Rent Roll
An investment priced to the pro forma rather than the rent roll will sit, and then sell below the number it rejected.
A pro forma is a story a sponsor tells about a building that does not exist yet. A rent roll is the record of a building that does. The investment sales market in Central Kentucky rewards the buyer who reads the rent roll first and the pro forma second, and punishes the buyer who reverses the order.
We underwrite to the rent roll, the lease expiration schedule, and the tenant credit, because those are the numbers that will pay the debt. The pro forma is the upside, and the upside is the part the seller prices. We price to the in place, and we treat the upside as the option, not the basis.
The trailing twelve is the bridge. A rent roll that does not match the trailing twelve is a building whose income is moving, and the direction matters. We read the rent roll, the trailing twelve, and the variance, and we underwrite to the lower of the three when they disagree.
Industrial at the Scott County interchanges is the tightest product in the region, and the frontage is gone before the rent.
Student housing underwrites to the admission numbers, not the rent roll, and the admission numbers move slowly then quickly.