In this episode of the Ironclad Underwriting Podcast, Jason Williams and Frank Patalano break down the differences between T12, T9, T6, T3, T1, and pro forma numbers when evaluating a commercial real estate investment. They explain how looking at shorter time periods can reveal trends that a traditional T12 may hide, while also highlighting the risks of relying too heavily on pro forma projections and seller provided numbers. The conversation emphasizes the importance of detailed underwriting, due diligence, realistic budgets, and knowing when the numbers are telling you to walk away from a deal.

Topics Covered

• Understanding T12, T9, T6, T3, and T1 financials
• How shorter trailing periods can reveal changes in income and expenses
• Identifying seasonal trends in property expenses
• How accounting practices can affect financial statements
• The risks of underwriting a property using only T1 or T3 numbers
• Why broker pro formas can present an overly optimistic picture
• Identifying artificially reduced expenses before a sale or refinance
• How sellers can manipulate NOI through CapEx and expense classifications
• Using sensitivity analysis to test different underwriting assumptions
• Understanding realistic expense ratios across different asset classes
• The importance of third party budgets during due diligence
• Knowing when changing market conditions make a deal no longer viable
• Why sometimes the best deal is the one you do not take

Quotes

• “A T12 will smooth over a bad quarter, but a T3 that's annualized can make a good one look great.”
• “Sometimes the best deal is the one you don't take.”

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🎧 Connect with Frank:

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