In one sentence
A projection of a property's future income, expenses, and cash flow, used to underwrite value-add and development deals.
The longer version
A pro forma models what a property will produce after a business plan executes: renovated units, higher rents, or a completed build. It contrasts with in-place financials, which show current reality.
Lenders read pro formas skeptically, testing the rent growth, cost, and timing assumptions, because the loan's cushion depends on projections coming true.
Common questions
- What is a pro forma in commercial real estate?
- A projection of future income, expenses and cash flow based on the business plan, used to underwrite value-add and development deals.
- How do lenders treat a sponsor's pro forma?
- As the sponsor's view, not the lender's. Lenders test it against actual history, market data and their own assumptions.
- What is the difference between a pro forma and a T-12?
- A T-12 reports actual results over the last twelve months. A pro forma projects what the property could do if the plan succeeds.
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