Pro Forma vs. Reality: Why Seller Numbers Rarely Survive Due Diligence

Every commercial listing comes with a pro forma: a projection of what the property could earn. It's a sales tool, and buyers know it. The deals that close are the ones where the numbers survive due diligence. Here's where pro formas usually break, and how to build one that holds.

What a pro forma is (and isn't)

A pro forma projects income and expenses forward, usually with rents at market, vacancy low and expenses trimmed. The trailing 12-month statement (T-12) shows what actually happened. Buyers and lenders underwrite to the T-12 and treat the pro forma as the upside story. The gap between the two is where negotiations live.

Where pro formas break

• Rent bumps that ignore the leases. Projecting market rent on units or suites with years left on below-market leases.
• Vacancy set too low. A 2% vacancy assumption in a building that has run 10% for three years.
• Expenses that disappear. Self-managed properties often leave out a management fee, and older buildings understate repairs and reserves.
• Insurance and taxes at last year's number. In Florida, both get re-underwritten at sale. Taxes typically reset toward the purchase price, and insurance is priced on today's market.
• Capital needs left off. Roofs, HVAC, paving and storm repairs that a buyer's inspector will find anyway.

How buyers and lenders test the numbers

Expect a buyer to rebuild the pro forma from scratch: actual rent roll, signed leases, the T-12, tax bills, insurance quotes and a property condition report. Lenders size the loan on the income that's in place today, using debt service coverage, not on next year's projection. If the pro forma depends on rents you haven't signed yet, assume the buyer will pay for the current income and negotiate the rest.

How to build a pro forma that holds up

1. Start from the T-12, not from a wish list.
2. Mark every lease to its actual term and rent.
3. Use a vacancy factor the property has actually achieved.
4. Add a management fee and reserves even if you self-manage.
5. Re-quote insurance and estimate taxes at the new owner's basis.
6. Show upside separately, with the specific steps to reach it.

A clean, defensible pro forma doesn't lower your price. It shortens due diligence and keeps a buyer from re-trading at the end.

The bottom line

Price on what the property does today, and sell the upside as upside. If you'd like a second set of eyes on your numbers before you go to market, we'll build an independent broker opinion of value.

Call (850) 203-5788 or request a free broker opinion of value.