What Is an Offering Memorandum (OM)?
An offering memorandum (OM) is a marketing document prepared by a broker or seller to present a commercial real estate property for sale. It contains the property description, financial summary, rent roll, operating history, market analysis, and investment thesis. In CRE, an OM is a marketing package, not a regulated securities filing.
What Sections Are Inside an OM?
A typical OM follows a standard structure, though the exact layout varies by brokerage. Here is a section-by-section breakdown of what you will find.
| Section | What It Contains | What to Verify |
|---|---|---|
| Executive Summary | Asking price, cap rate, unit count, year built, location | Is the cap rate based on trailing or pro forma NOI? |
| Investment Highlights | Value-add thesis, market drivers, competitive positioning | Are claims supported by data in later sections? |
| Property Overview | Photos, unit mix, amenities, site plan, recent renovations | When were renovations done? How many units touched? |
| Financial Summary | T12, pro forma, rent roll, income/expense breakdown | Does the T12 NOI match the rent roll math? |
| Rent Comparables | Competing properties, their rents, amenities, occupancy | Are comps cherry-picked to support the asking price? |
| Market Overview | Submarket demographics, employment, population growth, supply pipeline | Is new supply coming that could pressure rents? |
| Sale Comparables | Recent transactions, price per unit, cap rates | How recent are the comps? Are they truly comparable? |
How Is a CRE Offering Memorandum Different from a PPM?
A CRE offering memorandum is a marketing document with no regulatory requirements. A Private Placement Memorandum (PPM) is a legal securities filing used when raising investor capital for a fund or syndication, governed by SEC regulations.
The distinction matters because an OM is designed to sell the property, not to protect investors. OMs present the most favorable interpretation of the financials. That is why independent underwriting is essential: the broker's job is to maximize the sale price, and the OM reflects that goal.
What Red Flags Should You Watch for in an OM?
Every OM puts the property in its best light. Your job is to identify where the presentation diverges from reality.
- Pro forma cap rate on the cover: if the headline cap rate uses projected NOI rather than trailing NOI, the actual return is lower than advertised
- Vacancy below submarket average: aggressive occupancy assumptions inflate EGI and NOI
- No management fee in expenses: signals the owner self-manages. Add 5% to 8% to normalize
- Rent growth assumptions above market trend: 5%+ annual rent growth requires strong evidence
- Stale rent comps: comps older than 6 months may not reflect current market conditions
- Missing loss to lease disclosure: if the OM does not address the gap between in-place and market rents, do the math yourself
NAIOP, the Commercial Real Estate Development Association, publishes resources on due diligence best practices that can help buyers evaluate OMs systematically.
How Do You Read an OM Efficiently?
Experienced analysts do not read OMs front to back. They start with the numbers, then work backward to the narrative. Here is a practical reading order.
- Rent roll: check unit mix, in-place rents, lease expirations, and vacancy
- T12 financials: calculate trailing NOI and expense ratio
- Executive summary: compare the broker's stated cap rate against your trailing NOI calculation
- Rent comps: validate the broker's market rent assumptions
- Pro forma: understand the upside thesis and evaluate its assumptions
- Market overview: check supply pipeline and demographic trends
This approach lets you kill a deal in 10 to 15 minutes if the numbers do not work, instead of spending an hour reading marketing copy before discovering a fatal flaw. JLL and other major brokerages publish market research that can help you validate the submarket claims in any OM.