![]() In many cases, the pro forma may be the primary document upon which they rely for an investment decision. Investors in a commercial real estate transaction should review the pro forma, and the assumptions used to create it, to ensure that it is reasonable.However, it is important that a pro forma be created using conservative assumptions and market data. In fact, it is common for a buyer and a seller to have their own versions in a real estate purchase/sale transaction. There are no “right” numbers that result from a pro forma projection.The cash flow projected by a real estate pro forma is used to calculate key operating metrics like Net Operating Income and key return metrics like Internal Rate of Return and Cash on Cash Return.Each is estimated by using a combination of historical operating data, growth assumptions, and current market information. ![]() A typical pro forma contains three sections: income, expenses, and debt service.A commercial real estate pro forma is a projection of a property’s cash flow over a defined holding period.
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