Honestly Speaking: Expenses (and Real Income) Are Making or Breaking CRE Deals

A lot of CRE talk still starts with rents and ends with rates. But lately, the deals that fall apart aren’t dying because demand vanished, they’re dying because the numbers underneath the story don’t hold up.

In today’s market, expense discipline and income verification aren’t “nice to have.” They’re the whole game.

Why This Matters More Right Now

When values were rising and debt was cheap, underwriting could be a little… forgiving.
Now, margins are thinner, capital is pickier, and small errors aren’t small anymore.

What’s changed:

• Rising operating costs are eating into returns faster than many assumptions account for.
• Lenders are scrutinizing statements harder and discounting “best case” projections.
• Buyers are less willing to underwrite around unanswered questions.

Where Deals Get Misleading (Even Without Anyone “Lying”)

It’s common to see financials that look clean until you zoom in. The issue usually isn’t necessarily fraud, it’s presentation.

The “Below-the-Line” Problem

Some sellers (and yes, brokers) will push recurring costs below the line to make NOI look stronger than it really is.

Common examples:

• Owner payroll presented as “one-time” or “non-recurring”
• Repairs and maintenance treated like capital improvements
• Management costs minimized, excluded, or treated as optional
• Legal/accounting/admin expenses labeled as “owner-specific”
• Insurance or tax increases treated as temporary abnormalities

The result: the deal looks stronger on paper than it will operate in real

Income Gets Spun Too

Income can be just as “adjusted” as expenses, sometimes more.

What we watch for:

• Temporary income treated like permanent income
• Concessions and free rent not reflected clearly
• Vacancy assumptions that don’t match actual leasing friction
• Rent bumps counted before they’re actually realized
• “Other income” inflated without proof it’s repeatable
• Bad debt miscalculation

Why Honest Accounting Can Make or Break a Deal

When you normalize the numbers:

• A “great deal” can become tight fast
• A value-add plan can turn into a heavier operational lift
• A loan that looked doable can suddenly not size

This is why many deals don’t die early,  they die late, during due diligence, when the real story shows up.

The Practical Takeaway

For sellers and brokers

Clean financials don’t weaken a deal. On the contrary, they protect it.
Deals collapse when surprises show up mid-process and trust disappears.

For buyers and investors

Hard questions aren’t being difficult,  they’re being realistic.
In this market, clarity is worth more than optimism.

And so:

This cycle isn’t rewarding the prettiest story,  it’s rewarding the cleanest math.
Assets that trade and finance smoothly will be the ones with:

• real income
• real expenses
• and underwriting that doesn’t rely on hope

Because when margins get thin, “close enough” stops being close enough.

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