Property acquisition model
Rent roll, NOI, cap rate, three-constraint loan, waterfall. Underwrite an income-producing property from the rent roll to a levered IRR, size the loan to the tightest of three constraints, and run the sponsor’s promote through a waterfall.
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
On this subject: property acquisition model.Updated 30 September 2026
Who builds it, and for whatThe underwriting model behind every acquisition memo at a real estate fund, a REIT or a bank’s real estate lending desk: what the building earns lease by lease, what it is worth at a cap rate, how much a lender will advance against it, and what the equity earns before and after the sponsor’s promote. The mechanics are Excel; the logic is not corporate finance, and the model is built to show where the two part.
| A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1 | Assumptions | ||||||||||||||
| 2 | Blue cells only. $ millions except per square foot figures; area in thousands of square feet; years. The building is invented. | ||||||||||||||
| 4 | Year | Unit | Y0 | Y1 | Y2 | Y3 | Y4 | Y5 | Y6 | Y7 | Y8 | Y9 | Y10 | Y11 | |
| 5 | Timing | ||||||||||||||
| 6 | Year | # | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | |
| 7 | Hold period (years) | # | 10 | ||||||||||||
| 9 | The building and the purchase | ||||||||||||||
| 10 | Purchase price | $m | 92.0 | ||||||||||||
| 11 | Closing costs, % of price | % | 2.0% | ||||||||||||
| 12 | Other income ($ per sq ft a year, parking and storage) | $/sf | 1.50 | ||||||||||||
| 13 | General vacancy and credit loss, % of gross | % | 3.0% | ||||||||||||
| 14 | Recoverable operating expenses ($ per sq ft a year, Year 1) | $/sf | 9.00 | ||||||||||||
| 15 | Expense recovery from tenants, % of recoverable expenses | % | 60.0% | ||||||||||||
| 16 | Management fee, % of effective gross income | % | 3.0% | ||||||||||||
| 17 | Capital reserve ($ per sq ft a year) | $/sf | 0.50 | ||||||||||||
| 18 | Growth in market rent, expenses and other income, % a year | % | 3.0% | ||||||||||||
| 19 | Contractual rent bumps on in-place leases, % a year | % | 2.5% | ||||||||||||
| 21 | The loan | ||||||||||||||
| 22 | Maximum loan to value | % | 65.0% | ||||||||||||
| 23 | Minimum DSCR on Year 1 NOI | x | 1.3x | ||||||||||||
| 24 | Minimum debt yield: Year 1 NOI over the loan | % | 8.0% | ||||||||||||
| 25 | Interest rate, % a year | % | 5.5% | ||||||||||||
| 26 | Amortisation period (years) | # | 30 | ||||||||||||
| 27 | Origination fee, % of loan | % | 1.0% | ||||||||||||
| 29 | The sale | ||||||||||||||
| 30 | Exit cap rate on forward NOI | % | 6.5% | ||||||||||||
| 31 | Selling costs, % of sale price | % | 1.5% | ||||||||||||
| 33 | The waterfall | ||||||||||||||
| 34 | Sponsor co-investment, % of equity | % | 10.0% | ||||||||||||
| 35 | Preferred return to investors, % a year, compounding | % | 8.0% | ||||||||||||
| 36 | Promote to the sponsor above the hurdle | % | 20.0% |
Click any cell. The inspector names the line, the schedule it belongs to and what kind of cell it is; blue on cream is an input, black a calculation, green a value from another sheet. Scroll sideways to see every year.
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Property acquisition model: the workbook
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What the base case says
- Year 1 NOI
- $5.7m
- Going-in cap rate
- 6.2%
- Loan (tightest constraint)
- $59.8m
- Loan to value
- 65.0%
- Unlevered IRR
- 8.6%
- Levered IRR
- 12.0%
- Equity multiple
- 2.8x
- Third-party investor IRR after the waterfall
- 10.4%
Read from the workbook as served, every input at its default. Periods: Y0, Y1, Y2, Y3, Y4, Y5, Y6, Y7, Y8, Y9, Y10, Y11. The figures are invented and move with whatever you type in.
What this model is
A multi-tenant office building underwritten for a ten-year hold: a rent roll of five leases with expiries, renewal odds, downtime and re-letting costs; net operating income built from it; and a sale on forward NOI at an exit cap rate.
The loan is sized to the tightest of three constraints on Year 1 NOI, loan-to-value, debt service coverage and debt yield, so the equity cheque is an output. A constant-payment mortgage amortises over the hold and the balance is repaid at sale.
Returns are read unlevered and levered, with an exit cap rate sensitivity in live formulas, and the levered cash is then split through an equity waterfall with a compounding preferred return, a sponsor catch-up and a promote.
Seats: Private equity, Investment banking.
How the schedules connect
Every row in the workbook is tagged with the schedule it belongs to; the inspector above shows the tag when you click a row. These are the schedules this model is made of and where each one lives.
Rent roll
Every lease, year by year, with expiries priced in
Tenants, rows 6–15 · Rent Roll, rows 6–8 · Rent Roll, rows 11–24 · Rent Roll, rows 27–29
NOI build
Gross rent to net operating income
Assumptions, rows 10–19 · NOI, rows 6–10 · NOI, rows 13–16 · NOI, rows 19–21
Loan sizing: LTV, DSCR and debt yield
The lender lends to the tightest of three constraints
Assumptions, rows 22–27 · Debt, rows 6–15
Mortgage debt schedule
Constant payment, interest, principal, balloon
Debt, rows 18–25
Property returns
Unlevered and levered IRR, multiple, cash-on-cash, exit cap sensitivity
Assumptions, rows 6–7 · Assumptions, rows 30–31 · Returns, rows 6–9 · Returns, rows 12–17 · Returns, rows 20–26 · Returns, rows 29–37
Equity waterfall: preferred return, catch-up, promote
How the levered cash is split between investors and sponsor
Assumptions, rows 34–36 · Waterfall, rows 6–8 · Waterfall, rows 11–16 · Waterfall, rows 19–21 · Waterfall, rows 24–26 · Waterfall, rows 29–36
What you should be able to explain
- Why NOI is not EBITDA, and why it is built up from leases rather than down from a growth rate.
- What the cap rate is (a market input, not an output) and why a 100 basis point move is the most material sensitivity in the model.
- Why the loan is the minimum of three constraints, and what each one protects the lender against.
- How vacancy is an event with downtime and re-letting costs, not a flat percentage.
- What a preferred return, a catch-up and a promote each do to the split, and why the catch-up is the line first-time models forget.
What a reviewer looks for
- EBITDA language and an EV/EBITDA multiple on a property, where NOI and a cap rate are the currency.
- A flat vacancy rate that smooths away the lease expiries where the cash flow actually dips.
- Sizing the loan to a leverage multiple or a single constraint, when the lender tests three.
- A waterfall with no catch-up, which understates the sponsor’s promote in every scenario above the hurdle.
- Selling on trailing NOI instead of forward NOI, or forgetting selling costs.
Conventions this workbook uses
Stated on the cover sheet too. A model is only as trustworthy as the decisions it tells you it made.
- Annual periods. The building is bought at the start of Year 1 and sold at the end of Year 10; Year 11 exists only to price the sale on forward NOI.
- Vacancy is an event. Each lease pays contract rent with its bumps to expiry, then market rent; in the year after expiry the model deducts downtime, tenant improvements and a leasing commission, each weighted by the probability that the tenant leaves. A general vacancy and credit loss allowance sits on top.
- NOI is before capital reserves and leasing costs; cash flow before debt service is after them. The cap rate, the loan constraints and the DSCR read NOI, because that is what the market and the lender read.
- The loan is a constant-payment mortgage: the annual payment is the loan times the mortgage constant, interest is on the opening balance, and principal is the rest. Rate and amortisation are inputs; the balance repays at sale.
- The waterfall treats the sponsor’s co-investment as an investor. Tier 1 pays investors a compounding preferred return and their capital through a single hurdle balance; tier 2 pays the sponsor until its promote share of all profit distributed so far is reached; tier 3 splits the rest. Distributions are period by period across the hold, because timing drives both IRRs.
Build it yourself
The starter workbook
The Debt sheet has been cleared: the three constraints, the mortgage constant, the loan, and the schedule from the opening balance to the balloon. Size the loan to the tightest constraint and build the schedule so that the levered returns and the waterfall come back to life. The Checks sheet tells you when the loan respects every constraint and is repaid at sale.
Blanks: Loan sizing: LTV, DSCR and debt yield, Mortgage debt schedule. Free with any account. Compare with the worked model when you are done: download above.
The path around this model
Understand it, drill it, read the build, then apply it to a real company.
Read · Guide · 13 min
Real Estate Financial Modelling: Why Corporate Finance Mechanics Break Here
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Credit and Covenant Modelling: What a Lender Actually Tests
Read · Guide · 11 min
Financial Modelling Best Practices: The Conventions That Make a Model Auditable
Apply · Skill
Model Audit
Find the errors in a financial model before someone senior does.
Vocabulary: Net Operating Income (NOI), Cap Rate (Capitalisation Rate), Debt Yield, Loan-to-Value (LTV), Cash-on-Cash Return, Equity Multiple, Promote (Real Estate), Rent Roll.
Questions about this model
Why is the cap rate an input?
Because it is what the market pays for a dollar of stabilised NOI, read from comparable transactions, and the model has no way to derive it. The analyst’s job is to defend it. That is also why the Returns sheet carries the exit cap rate sensitivity in live formulas: a model that shows one cap rate has hidden its largest uncertainty.
Which constraint binds the loan?
Whichever gives the smallest loan on Year 1 NOI. In the base case it is loan-to-value; raise the cap rate or lower the NOI and debt yield or coverage take over. The Debt sheet names the binding constraint, because a lender will.
How does the waterfall handle the sponsor’s own money?
The sponsor’s co-investment is treated as an investor: it earns the preferred return and the tier-three split pro rata with everyone else. The promote is a separate stream, paid in the catch-up and in tier three. The sponsor’s IRR combines the two; the third-party investor IRR is what an LP would quote.
Why probability-weight the lease expiries?
Because underwriting is done before anyone knows whether the tenant renews. Weighting downtime, tenant improvements and commissions by the chance the tenant leaves gives an expected cash flow that is honest about the risk without building a scenario for every lease. The renewal odds are inputs, lease by lease.
What does it cost?
Nothing to inspect: the whole workbook is on this page. A free account chooses one worked model to keep, and downloads every starter workbook. L3VLUP Pro ($25/month) downloads the whole library and opens every model’s formulas in the inspector.