Pro Forma discipline starts with subtraction
Before a deal reaches an investment committee, the real work begins.
Not by adding upside, but by removing assumptions that do not survive scrutiny.
This process often lowers projected returns.
However, it also increases the probability those returns actually happen.
Why Cutting Matters More Than Optimizing
Most pro formas fail because they try to be impressive.
Strong pro formas aim to be durable.
Therefore, we start by identifying which assumptions depend on perfect execution.
Then, we remove them.
That approach sharpens risk visibility early.
The First Cut: Early Rent Growth
Sponsors love front-loaded rent growth.
Markets rarely cooperate.
So we flatten rent assumptions in the first year.
Instead, we allow growth only after leasing velocity proves itself.
According to Apartments.com, rent growth remains uneven across U.S. markets despite strong demand pockets.
https://www.apartments.com/research/
As a result, delayed growth protects early cash flow.
Next to Go: Instant Stabilization
Stabilization never happens overnight.
Renovations slow leasing.
Operational changes take time.
Tenant behavior lags improvements.
Therefore, we extend stabilization timelines.
That single change often reveals liquidity stress early.
RealPage data shows lease-up friction persists longer during competitive cycles.
https://www.realpage.com/analytics/
We Strip Out Exit Cap Optimism
Exit pricing hides the largest valuation risk.
When exit caps assume compression or flat markets, we widen them.
We also test multiple exit scenarios.
CBRE reports that exit cap expansion remains a dominant underwriting risk since rates reset.
https://www.cbre.com/insights/books/us-real-estate-market-outlook
If returns vanish under modest cap expansion, the deal depends on sentiment.
Expense Compression Gets Rewritten
Expense savings look easy in spreadsheets.
Operations tell a different story.
We remove aggressive payroll cuts.
We normalize maintenance and insurance upward.
The National Multifamily Housing Council notes operating costs continue to outpace income growth in many regions.
https://www.nmhc.org/research-insight/
Realistic expenses protect NOI integrity.
We Reduce Refinance Assumptions
Many models rely on clean refinancing.
Markets resist schedules.
So we reduce refinance proceeds.
We also delay timing assumptions.
This adjustment forces equity to survive longer without relief.
If the deal still works, it earns credibility.
Market Context Forces Additional Cuts
Local conditions matter.
Large-scale development pipelines change rent ceilings and lender behavior.
For example, ongoing Bay Area projects reshape underwriting assumptions across surrounding markets.
Internal link suggestion: market-driven underwriting risk using “Bay Area development impact”
https://temblog.org/the-new-bay-area-5-mega-projects-reshaping-the-real-estate-landscape-in-2025/
Ignoring context inflates confidence.
Distress Reveals the Weakest Assumptions
Forced sellers expose flawed models quickly.
In pressure scenarios, buyers value certainty over upside.
Cash flow matters more than projections.
Internal link suggestion: pricing realism under pressure using “selling under financial stress”
https://temblog.org/sell-your-home-fast-gilroy-3/
That reality informs what we cut.
What Remains After the Cuts
After subtraction, the pro forma looks smaller.
Yet, it also looks honest.
Returns compress.
Risk clarifies.
That clarity accelerates IC decisions and strengthens capital trust.
A Better Submission Mindset
Submitting a deal should feel uncomfortable.
If every assumption feels safe, something remains unchecked.
Strong deals survive pessimism.
Weak ones depend on optimism.
Final Thought
We do not cut assumptions to be conservative.
We cut them to be accurate.
Pro formas earn respect when they withstand stress, not applause.
That discipline protects capital long after approval.
