Underwriting Commercial Real Estate

[Chris Martino]

Hello BP, I am searching for any recommendations on best books or resources for underwriting various types of commercial and industrial properties. Looking to learn about how larger REI companies and banks are underwriting these properties on a high level.

Thanks in advance.

[Dushyant Ravi]

Adventures in CRE, Property Metrics are good resources for CRE underwriting. As a commercial real estate banker, I have underwritten CRE deals for my institutional clients like Blackstone, Brookfield and Related. From my debt perspective, the underwriting is simpler. But from the equity side, the underwriting can be pretty complex with dynamic waterfalls that can handle subordination of pref and/or return of capital, promote or CF split, funding priority, project IRR versus LP IRR hurdles, clawback/catch-up capability. But diving into all these first is diving into the deep end of the pool without learning to swim first. The articles from Property Metrics will help you get you feet wet and then the more advanced underwriting videos and models from adventures in CRE will help you to learn to swim. They also have a new course on CRE that might be helpful for you.  Once you have a good foundation, you can build on your skillset. 

Some of my favorite books:

1. Real Estate Finance & Investments: Risks and Opportunities - Can be a little theoretical. 

 2. Other People's Money: Inside the Housing Crisis and the Demise of the Greatest Real Estate Deal Ever Made is a fantastic read, but real estate people are definitely the "bad guys" in the story. I was rooting for the "villain" the whole way.

3. Hines: A legacy of Quality in the Built Environment. Tells the story of how Gerald Hines build one of the largest real estate firms in the world.

4. Trammell Crow, Master Builder: The Story of America's Largest Real Estate Empire

5. Poorvu's The Real Estate Game. Please read this one. It's a very easy read, and doesn't require prior real estate knowledge. It's very high level, back of the envelope way of looking at real estate and shares what's proven to be a very effective approach to small-time commercial real estate investing.