The Deal That Didn’t Make the Cut (And Why That’s a Win)

I’ve underwritten hundreds of multifamily deals over the last decade. Most never make it past the first round of analysis. But once in a while, one gets close—close enough that we run the full numbers, pull in the team, and take it seriously.

This post is about one of those. A recent Class A deal in Phoenix that checked most of the surface-level boxes... until we got into the details.

What Looked Good at First

The operator had a polished pitch deck. The property itself looked great: nice amenities, strong neighborhood, and $170K per unit—well below the $300K+ comps we’re seeing in hotter submarkets.

To a casual investor, it probably looked like a slam dunk.

But when my team and I ran our analysis, we found a different story.

Where the Numbers Fell Apart

Here are the key red flags that came up:

• Rent growth assumptions were too rich. They modeled 3% year-over-year. We used 2% (based on submarket data and market softness), and that one change dropped returns sharply.

• "Other income" was overinflated. $400K from smart locks, valet trash, and Wi-Fi charges? Not realistic. We modeled $300K.

• Move-in specials disguised true occupancy. The 90% occupancy they advertised was based on concessions—$500 gift cards, free month’s rent, etc. That's not stable income.

• Taxes were underwritten low. They assumed a 5% bump post-sale. We used 10–15%, as reassessments in the area have been climbing.

• Expense ratio was too optimistic. They modeled under 40%. We bumped it to 45% to reflect realistic operational costs.

From a 2x to a 1.2x Equity Multiple

Once we normalized the assumptions, their forecasted 2x equity multiple collapsed to 1.2x–1.3x.

That’s not good enough for our investors. Especially not in a transitioning market with rate uncertainty and flat rent trends.

Takeaways for Investors Evaluating Syndications

• If a deal only works under ideal assumptions, it’s not a deal—it’s a pitch.

• Stress test everything: rent growth, exit cap rate, expenses, and occupancy.

• Pay close attention to how “other income” and lease-up incentives are used.

Don’t fall in love with the marketing. Fall in love with the numbers—after you break them.