How to Read a Commercial Real Estate Operating Statement
Two documents drive the underwriting of investment commercial real estate: the trailing 12-month operating statement (T-12) and the rent roll. Knowing how to read them yourself — and how the lender will read them — is essential for any serious investor.
The Rent Roll
The rent roll lists each tenant, lease term, monthly rent, deposit, and any concessions. Lenders use it to verify in-place income, lease rollover risk (how much of the building has leases expiring in the next 12–24 months), and tenant concentration.
The T-12
The T-12 shows actual income and expense by month for the trailing twelve months. Lenders normalize this — adjusting out one-time items, adding back below-market expenses, and applying a vacancy assumption — to arrive at underwritten NOI.
Lender Adjustments
Common adjustments include management fees (lenders add 3–5% even if owner-managed), reserves for replacement, vacancy allowance, and stabilization of unusual line items. The seller's stated NOI is rarely the underwritten NOI.
Loss-to-Lease and Concessions
Properties with below-market rents have implicit upside the lender may or may not credit. Free-rent concessions and first-year discounts are typically backed out for underwriting purposes.
Educational content only — not advice. KQT Advisors, LLC is a commercial loan broker; we are not a lender, attorney, accountant, financial advisor, or fiduciary. We do not originate loans or make lending decisions. The information in this article is provided strictly for general informational and educational purposes and reflects our understanding at the time of writing. It is not — and must not be construed as — financial, tax, legal, accounting, investment, or any other professional advice, and creates no advisor-client relationship. Loan programs, rates, terms, eligibility requirements, fees, and approval criteria are set by individual lenders, the SBA, and other parties and are subject to change at any time without notice. Examples are illustrative only and not guarantees of outcome. Nothing here is a commitment to lend, an offer of credit, or a representation that any specific structure will be available to or appropriate for any borrower. Always consult your own qualified financial, tax, and legal advisors before acting on any information in this article. To the maximum extent permitted by law, KQT Advisors, LLC and its principals, employees, agents, and affiliates disclaim all liability for any direct, indirect, consequential, or incidental loss or damage arising out of any use of, reliance on, or inability to use the information in this article.