Underwriting the Case You Hope Is Wrong

Most acquisition models describe a future in which things go approximately as intended. Lease-up proceeds, expenses behave, financing is available on the terms assumed. The model is not dishonest; it is simply describing the outcome the buyer is working toward.

The more informative exercise is to model the version the buyer is not working toward. Slower absorption. Higher insurance and labour costs. A refinancing that arrives in a harder market than the one the debt was arranged in. If the asset still services its obligations in that case, the acquisition is defensible. If it only works in the base case, the buyer is taking a view on conditions rather than on the asset.

This discipline rules out opportunities that would have worked. That is the cost of it. The offsetting benefit is that the acquisitions which do clear the test rarely become the reason a portfolio is forced to sell something else.