From NOI to Exit: A Full-Stack CRE Valuation Model Explained
- chethan dk
- Jun 13, 2025
- 3 min read
The above visuals provide a snapshot of key underwriting assumptions and sensitivity analysis for a commercial real estate investment model.
The first table outlines critical inputs such as purchase price, unit-level operating expenses, debt terms, and projected annual increases — offering a foundation for NOI and valuation modeling.
The second set of charts explores IRR sensitivity based on changes in rent per square foot and leverage scenarios, highlighting how both rental rates and debt funding percentages significantly impact investor returns.
These analyses help in stress-testing the investment and making informed decisions under various market conditions.
📊 Projected Income Statement (10-Year Outlook)This snapshot reflects the projected revenue, operating expenses, and Net Operating Income (NOI) over a 10-year horizon. Notice the steady increase in revenue and NOI, reflecting sustainable growth and effective cost control.
🔹 Revenue CAGR: ~1.9%
🔹 NOI Growth: ₹5.65 Cr → ₹6.94 Cr
📈 This trend supports a strong investment thesis with rising operational efficiency.
Valuation, Debt Schedule & Return Metrics
💰 Valuation & Capital Structure Summary Highlights from this financial model:
Exit Year Valuation: ₹138.86 Cr (based on 5% cap rate & ₹6.94 Cr NOI)
IRR: 14%
Debt Schedule: Starting from ₹79 Cr, fully repaid by Year 10
💸 Cash-on-Cash Return: Begins modestly at ~3.9% and peaks at 86% in exit year due to capital gain.
📉 DSCR: Consistently above 1.0, signaling safe debt servicing capability.
Assumptions Summary
📌 Assumptions Driving the Model Key conservative inputs used in the underwriting:
Vacancy: 10%
Rent Escalation: 2% annually
Exit Cap Rate: 5%
Interest Cost: 4.5%
🎯 These realistic and market-aligned assumptions strengthen the reliability of the forecasted returns.
Key Ratios & Sensitivity Table
📊 IRR Sensitivity & Risk Metrics This table maps how slight changes in cap rate and exit year impact IRR, helping investors assess downside risk and upside potential.
🔍 Also includes:
Break-even analysis
Payback year
Min DSCR & Average DSCR
A quick glance at the fundamental assumptions driving this CRE deal — from pricing to projected growth and exit strategy.
📈 Revenue vs. Reality
From Year 1 stability to Year 10 upside — how revenue, NOI, and terminal value come together to deliver investor returns.
🧮 Financing & Returns Snapshot: Making the Numbers Speak
This deal leverages a 65% LTV with ₹79 Cr debt at 4.5% interest across 25 years — structured to balance risk and optimize cash flow.
📈 A 14% unlevered IRR and ₹138.9 Cr exit proceeds show the long-term upside.
💡 When modeled right, debt isn’t a burden — it’s a growth lever.
📊 DSCR Trajectory: The Power of Steady NOI Growth
A 10-year DSCR analysis shows consistent improvement from 1.07 to 1.31 — clear evidence of healthy NOI growth and manageable debt servicing.
✅ Anything above 1.0 is stable.
🟢 1.25+ is healthy. This is what underwriters, lenders, and investors want to see — a plan that matures well.
Interpretation
The project demonstrates strong and improving DSCR performance over the 10-year horizon, starting at 1.07 in Year 1 and reaching 1.31 by Year 10. This indicates the asset is comfortably able to service its debt obligations throughout the holding period, with adequate margin. The steady increase in NOI, paired with a fixed annual debt service, improves the risk profile each year — making the asset attractive not only for long-term investors but also acceptable under most lender underwriting frameworks
Additional Improvements & Considerations
LTV of 65% is moderate and matches DSCR comfort range.
Model assumes stable operating costs and conservative rental growth, keeping the projections realistic.
Sensitivity testing on cap rate and vacancy may further validate robustness, especially for investor pitch.
Adding Equity Multiple and Payback Year would make the return profile more complete.
CONCLUSION
From a financing perspective, the asset displays strong fundamentals, improving income stability, and acceptable credit risk.
The consistent DSCR above 1.2 by mid-hold and a terminal IRR of 14% indicate a viable and financeable opportunity under current terms. Recommendation: The deal qualifies for senior loan underwriting with minimal adjustments.
No major structuring changes are needed, although continued performance monitoring and cap rate sensitivity testing are advised during execution.
📂 Download the Full Valuation Model (Excel)
📝 Investment Memo: The story, strategy, and numbers—all in one place.
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