How Lenders Underwrite Operating Statements

Historical operating statements provide the starting point for understanding how a property performs; however, the numbers still need to be interpreted before they can be carried into a proforma. 

Lenders and investors are ultimately trying to figure out which revenues and expenses are recurring, sustainable, and representative of typical operations.  These assumptions determine underwritten NOI, which directly influences valuation, debt sizing, and projected returns.

Normalizing Operating History

A useful starting point would be to organize several years of operating data side-by-side and compare each line item using metrics such as percentage of revenue, dollars per square foot, and dollars per unit.

This makes it easier to identify trends, outliers, and whether individual line items reflect normal property operations or something unusual.  The next step is understanding why these unusual expenses occurred.

Identifying What is Recurring and What is Not

Repairs & maintenance provides a simple example.  According to the historical R&M expenses in the grid:

• 2024: $655/unit

• 2025: $1,117/unit

• 2026: $671/unit

It’s clear that 2025 indicates a significant increase in repairs & maintenance costs; however, further review shows that the year includes approximately $20,000 related to a one time roof replacement.  This would typically be treated as a capital expenditure, rather than recurring R&M expense.  Treating that amount as typical R&M would distort the property’s normalized operating history.  Removing the $20,000 reduces 2025 R&M to approximately $717/unit, which is much more consistent with the historical data.

Developing the Proforma

For a lender or investor, the credibility of the proforma depends heavily on how well the assumptions are supported.  When an assumption differs materially from historical performance, the underwriting should be able to explain why.

Historical ranges, current operations, market benchmarks, and expense comparables can all help establish whether those assumptions are reasonable and make the analysis easier for lenders to evaluate.

Well-supported assumptions also make the diligence process more efficient.  A lender may still have questions, but a clear operating statement analysis and supporting rationale make those questions easier to answer and reduce ambiguity around how the proforma was developed.  Think of the analysis as a defensible bridge from historical performance to underwritten NOI.