CRE Financial Modeling and Forecasting: Understand and Optimize Your Portfolio’s Performance

Commercial real estate (CRE) financial modeling and forecasting can be viewed somewhat as “predictive analysis” for how your portfolio is expected to perform in relation to your firm’s goals and to the broader market. Additionally, today’s activist investors want a constant pulse on how their investment is performing; with an accurate forecast, the information they need is readily available.

In light of ongoing economic changes and shifts in the CRE market, your modeling and forecasting scenarios and strategies more than likely look completely different than anything you’ve had in the past. Read ahead to learn about the different types of CRE modeling and forecasting techniques and how to apply them to optimize portfolio performance.

CRE Financial Modeling and Forecasting Strategies

There are several modeling and forecasting strategies that can be applied to a CRE portfolio, including:

Market Analysis

Analyzing market data can help you identify trends, such as regarding supply and demand dynamics, rental rates, and occupancy levels, all which are crucial for portfolio optimization.

Property Valuation Models

Utilizing methods like the discounted cash flow (DCF) analysis allows you to determine the value of your assets, helping you make informed decisions about acquisitions, dispositions, and renovations.

Note: STATVAL™  is proprietary software that extracts and repurposes raw CMBS files for Advanced Statistics and Automated Property-Level Analytics.

Portfolio Performance Modeling

Portfolio performance modeling in commercial real estate is a data-driven approach that involves the analysis and evaluation of a collection of real estate assets within a portfolio. By employing quantitative techniques, historical data, and market insights, it provides a holistic assessment of the portfolio’s financial and operational performance. This modeling helps stakeholders gauge returns, assess risk, diversify assets, benchmark against industry standards, and forecast future cash flows. It enables investors and asset managers to make informed decisions about acquisitions, dispositions, and strategic adjustments, ultimately optimizing the portfolio’s profitability and resilience in a dynamic and competitive real estate market.

Risk Assessment and Sensitivity Analysis

Predicting how your portfolio will perform under various market conditions and identifying potential vulnerabilities is essential for risk management.

Using CRE Financial Modeling and Forecasting to Optimize Performance

There are many types of financial models with a wide range of uses. The output of a financial model is used for decision-making and performing financial analysis, whether inside or outside of the company. Financial modeling can be used to make decisions about:

  • Raising capital (debt and/or equity)
  • Making acquisitions (businesses and/or assets)
  • Growing the business organically (e.g., entering new markets, etc.)
  • Selling or divesting assets and business units
  • Budgeting and forecasting (planning for the years ahead)
  • Capital allocation (priority of which projects to invest in)
  • Valuing a business
  • Financial statement analysis/ratio analysis
  • Management accounting 

Know Where You Stand: Financial Modeling and Forecasting for 2024

An important component of successful budgeting and forecasting is knowing where you stand. By this, we mean understanding your valuations and debts and how they relate to one another. Then, it’s important to assess your property operations, NOI, and cashflow. Finally, you can model your forecasts to optimize your investment.

Take these three actions to help you “know where you stand”:

  1. Produce a market assessment to include a market rate & statistical valuation analysis
  2. Perform asset evaluations, including a comparables analysis, debt forecast, and equity forecast
  3. Model asset, debt, and equity forecasts for high-confidence next steps to communicate to your team & investors

Our team at Thirty Capital Performance Group offers real estate advisory services and provides independent, unbiased insights and recommendations. These services can help you understand where you stand so that you can more accurately prepare your 2024 budget. Contact us today to speak with an expert!

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