My underwriting model broke mid-deal on a $3.2M strip center in Nashville last Thursday

Turns out I forgot to flag a ground lease expiration that killed the NOI projection by 22% and the deal fell apart during committee review has anyone else had a hidden lease clause blow up their cash flow modeling?

3 comments

3 Comments

craig.grant7d agoTop Commenter

Did your model catch the automatic renewal terms or did that sneak past too? I had a similar mess with a shopping center in Charlotte where an old ground lease had a 5% annual escalator that I missed, and it wiped out almost every bit of my projected return.

grayperez7d ago

Oh man, I have to respectfully push back on @craig.grant here. A 5% annual escalator in a ground lease is pretty standard stuff, not some buried clause you'd miss if you did basic due diligence. If your model didn't catch an automatic renewal with standard escalators, that's a process problem, not a hidden lease clause problem. The Nashville strip center thing sounds more like you missed a hard expiration date with no renewal option, which is a whole different beast than what Craig described. Ground leases are tricky, but you have to read those things like a contract, not skim them like a term sheet.

michael_jones7d ago

Read them like a contract, not skim them like a term sheet" - that's the line right there. Agree completely. And yeah @craig.grant no hard feelings from me, but that Charlotte deal sounds brutal. Easy to see how you'd miss it in the rush.