Would you buy Willow Industrial at $16m?
An AI draft says the property is an easy buy. Check its cash assumptions before you repeat the recommendation.
“People are spending more time on creative, value-add parts of the job.” (opens the source)
The question
Willow Industrial is an invented 100,000-square-foot U.S. warehouse. All amounts are in U.S. dollars. The hold lasts five years. No rent growth, tax, depreciation, promote or refinancing is modeled.
Buy at $16m. Use $1.08m NOI from year 1. Tenant work is already inside NOI. The loan will amortize with interest payments. A 5% exit cap provides upside.
| Assumption | |
|---|---|
| Year 1 NOI | $1m |
| Year 2 NOI | $800,000 |
| Year 3 to year 6 NOI | $1.08m |
| Initial equity including closing costs | $6.72m |
| Year 2 equity contribution | $316,000 |
| Base exit cap | 6% |
No rent growth, principal amortization or 5% exit evidence is supplied.
“Identify the model errors. Give a conditional investment decision and the first three diligence requests.”
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A strong answer, step by step
Open each step in turn. This is one strong answer, not the only one.
Step 1: Fix the lease timing
What would you do here? Open the move you’d make.
Accept the draft because the arithmetic is fluent.
Tempting, but it misses something. Correct arithmetic can still use false inputs.
Read leases and the rent schedule.
The strong move. Those records support the cash timing.
See how a strong candidate says it
“The draft uses stabilized NOI too soon. I use $1m in year 1 and $800,000 in year 2.”
Why it works: A plausible-looking paragraph cannot override lease dates.
Step 2: Fix the cash claims
What would you do here? Open the move you’d make.
Assume the interest payment reduces principal.
Tempting, but it misses something. This loan is interest-only.
Rebuild the cash bridge from the packet.
The strong move. The same loan balance remains at exit.
See how a strong candidate says it
“I include the $300,000 roof, $540,000 lease costs and interest-only principal repayment.”
Why it works: Omitted capital and false amortization overstate the equity proceeds.
Step 3: State what the equity earns
What would you do here? Open the move you’d make.
Divide gross sale price by initial equity.
Tempting, but it misses something. That is not the equity multiple.
Include the negative year 2 cash in paid-in equity.
The strong move. It is real money the investor must provide.
See how a strong candidate says it
“At a 6% exit cap, equity contributes $7.036m in total and receives $9.676m: about 1.38x over five years.”
Why it works: The denominator includes the interim contribution, not just closing equity.
Step 4: Make a decision that can change
What would you do here? Open the move you’d make.
Approve by assuming a 5% exit cap.
Tempting, but it misses something. That introduces unsupported appreciation.
Hold or lower the bid pending evidence.
The strong move. The base annual return is below the case hurdle.
See how a strong candidate says it
“I would not approve a 15% return case from these inputs. I need executed leases and start dates, capital bids, and comparable sales before changing the bid.”
Why it works: The 15% hurdle is this invented team’s requirement, not a market promise.
The answer, in short
- Decision
- Do not approve the $16m bid for a 15% hurdle from these inputs.
- Because
- The base case requires more equity during lease-up and produces about 1.38x total paid-in equity over five years.
- What would change it
- A lower price, signed rent improvement or documented capital savings could change the return. Test each separately.
The broker sends a signed lease but no evidence for the 5% exit cap. Which part of your view changes?
Common traps
- Presenting an AI draft as checked underwriting.
- Using upside assumptions to hide a weak base case.
Check your answer
- I corrected the lease timing.
- I included capital costs and debt repayment.
- I counted all equity contributions.
- I gave a decision and evidence that could change it.
Last reviewed Nov 10, 2026