What is underwriting?

Definition: Underwriting is the process by which real estate investments are evaluated to determine their viability.

This includes reviewing due diligence materials related to the investment in order to assess the various factors that may or may not contribute to its eventual success or failure.

In real estate, both the investment property and the “sponsor” or real estate company that owns the project are evaluated during the underwriting process. Sponsors are evaluated based on their financial stability, track record, ability to compete in major markets, and project-specific expertise.

Project underwriting involves a detailed analysis including, but not limited to, the following factors:

Location
Market
Business plan (investment strategy)
Risk/return profile
Existing financial sources
Proposed financial uses
Exit strategy
In depth market analysis including study of comparable properties
Third-party reports
Budget analysis including detailed breakdown of construction costs
Architectural plans and site plans
Pro-forma financial analysis
DSCR/LTV sensitivity
Investment structure
Legal/organizational structure
Third party references
Site visit and walk-through

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