The FORT Podcast: How to Underwrite an Industrial Deal & Create Investment Memos LP’s Love
On this episode, Fort Capital CEO Chris Powers outlines the underwriting process on industrial deals from start to finish making it simple to understand whether you’re green or a seasoned veteran. This episode will provide an outline for how these deals get done and the mistakes that a lot of people make along the way so you can deal smarter in the future. Enjoy!
Click here for Fort Capital’s ’11 Simple Steps to Creating a Successful Investment Memo’.
(01:07) – What is Underwriting?
(02:14) – Variables that Contribute to the Value in Underwriting
(02:40) – Market, Demographic and their Respective Trends
(03:50) – Purchase Price
(04:15) – Expenses
(05:04) – Modeling Expenses Out in a 5-Year Model
(05:21) – Taxes & Insurance
(06:15) – Tenants
(07:03) – Where Rent is Today vs. the Market Rate
(07:59) – Tenant Renewal Probability
(09:55) – Current Vacancies
(10:42) – Capital Expenditure Requirements
(11:44) – Tenant Improvement Costs
(12:26) – Underwriting the Capital Structure & Refinance Scenarios
(13:49) – What does an exit scenario look like?
(15:15) – Things People Miss and Mistakes We’ve Missed Along the Way
(18:45) – How Fort Capital Thinks About the Process of Doing a Deal
(19:59) – How Long the Underwriting Process Should Take
(20:42) – Where We Get Most of Our Data
(21:12) – Where does information live when underwriting? How is it communicated to the team & non-team?
(22:58) – Final Thoughts on Underwriting
(23:58) – Writing an Investment Memo
(25:10) – What We Think about Presenting in Our Memos
(26:12) – Reasons to Acquire
(26:38) – Location Overview
(27:09) – The Property Itself
(27:35) – Tenant Overview
(28:10) – Sources and Uses of Funds
(29:02) – Financial Summary & What Investors Can Expect in Return
(30:22) – Partnership Terms
(31:48) – Models & Return Summary
(32:17) – Property Photos & Market Map
(33:02) – Conclusion & Free Resources from Fort Capital
Underwriting, a linchpin in the real estate deal-making trajectory, serves as a comprehensive platform to assess the viability and potential of investment opportunities. Powers underscores this by elucidating the inherent necessity of maintaining a robust, yet malleable, framework within investment committees. The dialogue underscores that recommendations and decisions, despite having substantial investments of time and resources, must remain open to re-evaluation and adjustment in light of compelling counterarguments or shifts in market dynamics. This ideology sets the stage for a broader discussion into the nuanced mechanisms of underwriting in the real estate sector.
Further discussions unravel the complexities and strategies underpinning Fort Capital’s approach to deal evaluation and underwriting. Chris illuminates various facets and dimensions integral to a deal’s analysis, ensuring a thorough understanding of its dynamics and potential. Herein lies a crucial takeaway: the assurance that each deal not only stands up to rigorous evaluation but also aligns seamlessly with overarching investment objectives and strategies, embodying a strategic equilibrium between risk and reward.
Pivoting towards financial dimensions, Powers elucidates the financial scrutiny encapsulated within deal evaluations, ensuring investments are not only safeguarded but also optimized. This in-depth financial exploration underscores the necessity of thorough financial analysis to validate the financial viability and potential of deals. It emphasizes safeguarding investments against potential pitfalls and ensuring their alignment with overarching financial objectives and strategies, thereby fortifying the financial backbone of each transaction.
In subsequent sections, the dialogue seamlessly navigates through various facets of underwriting and deal analysis, exploring an array of aspects and dimensions intrinsic to the deal evaluation process. The discussion sheds light on the importance of ensuring a holistic and meticulous approach to deal analysis, ensuring that investments are safeguarded and strategically aligned with overarching investment objectives and criteria.
Transitioning into a global perspective, the dialogue explores the myriad landscapes and dynamics permeating the international real estate scene. Insights into disparities and commonalities across different geographical real estate landscapes are brought to the fore, offering listeners a nuanced perspective on the challenges and opportunities embedded within international markets. The discourse provides a comprehensive insight into the global real estate landscape, exploring varied dynamics, challenges, and opportunities that permeate different markets.
As the dialogue unfolds, discussions delve deeper into the realms of deal analysis and underwriting, providing listeners with an enriched perspective into the myriad facets and considerations that are encapsulated within the process. Powers offers detailed insights into various aspects and dimensions considered during the deal analysis process, offering a detailed panorama into the intricacies and dynamics of deal underwriting.
Concluding the dialogue, Powers encapsulates myriad insights and perspectives, offering listeners a consolidated and comprehensive panorama of the underwriting and deal analysis process.
The FORT with Chris Powers is produced by Straight Up Podcasts