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Back-of-the-napkin commercial real estate underwriting, in seconds.
5 Second Model · back-of-the-napkin underwriting
Vacant Retail Box
Buy the dark box, re-tenant it, hold it, sell it. Does the spread cover the work?
Buying a dark retail box and re-tenanting it is a development deal wearing an acquisition’s clothes. You pay for the building, then you pay again for tenant improvements, landlord work, a leasing commission and months of carrying an empty shell before rent starts. This model runs the whole sequence and reports the number that decides it: yield on cost against the exit cap. That spread is where a conversion makes money, because you are manufacturing a stabilized asset for less than one costs to buy.
Levered IRR / Equity multiple
--
Equity out at close, then rent, then the sale
What it costs to get open
| Purchase price | -- |
| Closing costs | -- |
| Tenant improvement allowance | -- |
| Landlord work | -- |
| Leasing broker fee | -- |
| Capital work funded at closing | -- |
| Total project cost | -- |
| Loan fee | -- |
| Cost per SF | -- |
| Loan proceeds | -- |
| Equity required | -- |
Sources and uses
Deal metrics
Yield by year
Return on total cost as the deal stabilizes, against the cap rate you exit at
What the box still needs
Does the spread work
| Stabilized NOI | -- |
| Yield on cost | -- |
| Exit cap rate | -- |
| Development spread | -- |
| Stabilized DSCR | -- |
| Year-one debt service | -- |
The exit
| Forward NOI at sale | -- |
| Sale price at exit cap | -- |
| Less cost of sale and loan payoff | -- |
| Net proceeds to you | -- |
| Total profit over the hold | -- |
| Unlevered IRR | -- |
| Net present value | -- |
Debt service coverage by year
Amortization schedule
Return sensitivity
Levered IRR across achieved rent and exit cap. Your case is outlined.
Scenario analysis
Each column is the whole model re-run, not an adjustment to the base case.
What moves the return most
Points of IRR between the low and high case for each driver, ranked
Where this deal breaks
Solved against your own discount rate. Everything else held at your assumptions.
Common questions
- How do I underwrite subdividing an old pharmacy or drugstore box?
- Model each demised suite as its own tenant with its own rent, term and TI, and add the demising cost — walls, separate utilities, restrooms, storefronts — to landlord work. A 13,000 SF box split into three suites usually rents at a higher blended rate per foot but costs more to deliver and takes longer to fill. Use the Strip Plaza model once you have more than one tenant.
- What development spread do I need on a conversion?
- Yield on cost above the exit cap is the whole game. Under about 100 basis points there is not enough room for the schedule to slip, and it always slips.
- Should roof replacement go in the basis or the cash flow?
- It depends when you spend it. Anything the tenant will demand before occupancy belongs in the basis at closing. A roof with six years of life left is a capital event in year six, and this model lets you place it in the year you will actually write the cheque.