An offering memorandum (OM) is the marketing package a broker creates to sell an income-producing property. It contains the property summary, financial statements, rent roll, market analysis, and investment thesis. Reading an OM effectively means identifying what to trust, what to verify, and what the broker is not telling you.
What Is an Offering Memorandum?
An offering memorandum is a comprehensive marketing document prepared by a listing broker to present a commercial property for sale. It is the primary sales tool in CRE transactions, combining property data, financial analysis, market context, and the broker's recommended investment thesis into a single package.
The listing broker or their team creates the OM after the seller engages them to market the property. The document is distributed to potential buyers, often under a confidentiality agreement, as the first step in the disposition process.
OMs serve a dual purpose. They provide enough information for a buyer to evaluate the opportunity at a high level, and they frame the property in the most favorable light possible. This second purpose is what makes reading an OM a skill, not just an exercise in data collection. The broker has chosen which numbers to highlight, which assumptions to use, and which details to omit.
OMs range from 20 pages for a small multifamily deal to 200+ pages for an institutional-quality portfolio. Regardless of size, every OM follows a similar structure designed to move a buyer from interest to offer. Understanding that structure helps you read faster and more critically.
What's Inside a Typical OM?
Every OM is organized to tell a story. The table below breaks down each section, what it contains, and what you should watch for as a buyer. According to NAIOP's transaction best practices, thorough OM review is the foundation of sound investment decisions.
| Section | What It Contains | What to Watch For |
|---|---|---|
| Executive Summary | 1-2 page overview: property name, address, unit count, asking price, headline cap rate, and key investment highlights | Check whether the cap rate is based on in-place or pro forma NOI. Brokers often use pro forma to inflate the headline number. |
| Property Description | Physical details: year built, renovations, unit mix, amenities, parking, lot size, zoning, building class | Look for deferred maintenance signals. Phrases like "value-add opportunity" often mean the property needs significant capital expenditure. |
| Financial Summary | Income and expense overview: GPR, vacancy, effective gross income, operating expenses, NOI, cap rate, price per unit | Verify whether the NOI is "actual" or "pro forma." Confirm expense ratios against market benchmarks (typically 40-55% for multifamily). |
| Rent Roll | Unit-level tenant data: unit numbers, lease dates, in-place rents, vacancy, full rent roll | Check the date. A rent roll older than 30 days is stale. Cross-reference totals against the financial summary. Look for MTM concentration. |
| T12 / Operating History | Trailing 12-month income statement, sometimes with 2-3 years of historical data. Learn about T12s. | Compare T12 collected income to rent roll scheduled income. A gap signals bad debt, concessions, or vacancies the OM is glossing over. |
| Market Overview | Submarket demographics, employment, population growth, supply pipeline, rent growth trends, comp data | Brokers cherry-pick favorable stats. Check the data vintage and verify independently using sources like the Commercial Observer. |
| Comparable Sales | Recent sales of similar properties: price, cap rate, price per unit/SF, date, buyer type | Verify that "comps" are actually comparable. Brokers may select deals that support a higher valuation while ignoring closer matches that sold lower. |
| Investment Highlights | Bullet-point selling features: below-market rents, value-add potential, strong market, low basis | Every highlight implies risk. "Below-market rents" may mean tenants will not absorb increases. "Value-add" means capital expenditure. |
| Assumptions / Projections | The broker's pro forma: projected rent growth, expense growth, renovation premium, exit cap rate | This is where most OMs are most aggressive. Compare growth assumptions to historical actuals. An exit cap rate below entry cap rate assumes appreciation. |
Not every OM includes every section. Smaller deals may omit the market overview or comparable sales. Institutional-quality packages from major brokerage firms will include all of these and more, sometimes with detailed unit-level renovation schedules and submarket supply pipeline analysis.
How to Read an OM in 5 Steps
Most buyers read OMs front to back. That is a mistake. The OM is designed to build excitement before showing the numbers. Flip that order. Start with the data, then read the narrative.
Step 1: Start with the Financials, Not the Photos
Skip the glossy photos and executive summary. Go directly to the financial summary page. Look at three numbers first: in-place NOI, asking price, and the resulting cap rate. If the cap rate does not meet your buy box criteria, you can stop here and move to the next deal.
Check whether the financials are labeled "actual," "trailing," or "pro forma." Brokers sometimes present pro forma numbers alongside actuals without clearly distinguishing them. If the financial summary only shows pro forma projections, treat the headline cap rate with skepticism.
In-Place Cap Rate = Trailing NOI / Asking Price
// If broker shows 6.5% but trailing NOI yields 5.2%, the gap is pro forma assumptions
Step 2: Cross-Reference the Rent Roll with the T12
The rent roll shows what tenants should be paying. The T12 shows what the property actually collected. These two documents should reconcile, but they rarely match perfectly.
Take the total monthly rent from the rent roll and multiply by 12. Compare that number to gross rental income on the T12. If the T12 is significantly lower, the gap represents some combination of vacancy loss, bad debt, concessions, and collection issues that the rent roll alone does not reveal.
Expected Annual Income = Rent Roll Monthly Total x 12
Collection Gap = Expected Annual Income - T12 Gross Rental Income
// A gap over 5% needs explanation
Step 3: Check the Broker's Assumptions Against Market Data
The projections section is where brokers have the most creative freedom. Common assumptions to scrutinize: annual rent growth (3%+ is aggressive in most markets), expense growth (if it is lower than rent growth, ask why), vacancy assumptions, and the exit cap rate.
Per Fannie Mae Multifamily lending standards, underwriters stress-test vacancy at 5-10% even in strong markets. If the OM assumes 3% vacancy in a market averaging 7%, the pro forma NOI is overstated.
For rent growth validation, check the submarket's trailing 3-year and 5-year actual rent growth. If the OM projects 4% annual growth and the market has averaged 2.5%, the broker is pricing in an acceleration that may not materialize.
Step 4: Read the Rent Roll for Red Flags
The rent roll is more than an income summary. It is a diagnostic tool. Experienced acquirers look for patterns that signal operational problems or hidden risk.
- MTM concentration above 20%: month-to-month tenants can leave with 30 days notice, creating a turnover cliff
- Lease expiration clustering: if 30%+ of leases expire within 90 days, you face a mass renewal event immediately after closing
- Below-market rents with no renovation plan: rents may be below market because the units are outdated, not because management left money on the table
- Vacancy concentrated in one unit type: if all vacant units are 2BR/2BA, the issue may be pricing or configuration, not market demand
- Recently signed leases at above-market rents: sellers sometimes inflate rents pre-sale with concessions that do not appear on the rent roll
For a complete rent roll analysis framework, see our step-by-step rent roll analysis guide.
Step 5: Calculate Your Own Metrics Independently
Never rely on the broker's calculations. Rebuild the key metrics yourself using the raw data from the OM.
Your NOI = T12 Effective Gross Income - T12 Operating Expenses
// The delta reveals where assumptions diverge
If your cap rate is 50+ basis points below the broker's, the gap is in the assumptions. Find those assumptions and decide whether you agree with them. Use a pro forma template to build your own model from the T12 data rather than accepting the broker's projections.
Red Flags in Offering Memoranda
These warning signs should trigger deeper investigation or prompt you to request additional documentation before proceeding.
Pro Forma Numbers Presented as Actuals
The most common OM trick. The financial summary shows a 6.5% cap rate, but it is based on projected rents after renovations, not current in-place income. Always look for labels: "actual," "trailing," "annualized," or "pro forma." If there is no label, treat it as pro forma.
Vacancy Assumptions Below Market
If the submarket runs 7% vacancy and the OM projects 3%, the broker is underwriting fantasy. Even stabilized Class A properties in strong markets carry 4-5% economic vacancy when factoring in turnover, concessions, and bad debt.
Missing Trailing Twelve
An OM without a T12 is a marketing brochure, not an investment document. The T12 is the only place where actual historical operating performance lives. If the broker says "T12 available upon request," request it before spending any more time on the deal.
Old Rent Roll (60+ Days)
A rent roll from two months ago does not reflect current occupancy. Tenants may have moved out, rents may have changed, and new concessions may have been offered. Request a current rent roll before making any preliminary offer. A stale rent roll in an OM often signals that occupancy has declined since it was generated.
No Cap Rate Comps Provided
If the OM includes comparable sales but omits cap rates on those comps, the broker may be hiding unfavorable pricing context. Legitimate comps include sale price, cap rate, price per unit, and date of sale. Missing data points suggest the comps do not support the asking price.
Expense Line Items Missing or Aggregated
When operating expenses are shown as a single lump sum rather than broken out by category (taxes, insurance, repairs, management, utilities), the broker may be hiding an unfavorable expense structure. Full line-item transparency is standard for institutional-quality OMs.
OM vs Other Deal Documents
The OM is just one document in a transaction. Here is how it compares to the other key documents you will encounter during due diligence.
| Document | Created By | Purpose | Trust Level |
|---|---|---|---|
| Offering Memorandum | Listing broker | Market the property; attract offers | Verify everything |
| Rent Roll | Property manager / seller | Current tenant and lease data | Cross-reference |
| T12 (P&L) | Property manager / accountant | Actual income and expenses, 12 months | Reliable (verify with bank statements) |
| Appraisal | Independent appraiser | Third-party valuation opinion | Independent, regulated |
| Tax Returns | Owner / CPA | Income/expense verification for IRS | High (legal consequences for fraud) |
The key takeaway: the OM is the least independently verified document in the transaction. It is a sales tool. Every number in it should be confirmed against the rent roll, T12, and your own independent research before you submit an LOI.
What Brokers Typically Omit from an OM
Understanding what is NOT in the OM is as important as reading what is. Brokers are not required to disclose unfavorable information unless asked directly. Common omissions include the following.
- Delinquency and bad debt data: the rent roll shows scheduled rent, not collected rent. Delinquent tenants appear as "occupied" with full rent listed.
- Capital expenditure history and needs: upcoming roof replacements, HVAC systems nearing end of life, or plumbing issues are rarely detailed in OMs.
- Environmental concerns: Phase I issues, flood zone status, or contamination from neighboring properties are typically disclosed only during due diligence.
- Pending litigation: tenant lawsuits, code violations, or zoning disputes are not standard OM inclusions.
- Real tax reassessment risk: in markets where property taxes reset to purchase price upon sale, the OM may show current (lower) taxes rather than projected post-sale taxes.
- Concession details: "2 months free on a 14-month lease" means effective rent is 14% below face rent, but the rent roll may only show the face amount.
Request these items explicitly and early in the process. Experienced acquisitions teams send a standardized due diligence checklist immediately after signing the CA (confidentiality agreement), which is well before submitting an offer.
Why Speed Matters When Reading OMs
In competitive markets, brokers send OMs late in the week, often Thursday or Friday afternoon. The call for offers may be the following Monday or Tuesday. Teams that can screen, underwrite, and submit a preliminary offer fastest have a structural advantage.
This is the "Thursday 5 PM OM drop" dynamic that drives institutional deal flow. If your team receives 10-15 new OMs per week and each requires 30-45 minutes of initial screening, you are spending 5-10 hours per week just deciding which deals deserve deeper analysis. Most of those deals will be killed at this first gate.
The real cost is not the time spent on deals you pursue. It is the time spent on the 80% of deals you ultimately reject. Reducing the screen-and-kill time from 30 minutes to 10 minutes per deal reclaims hours every week and lets your team evaluate more opportunities.
How Primer Handles OMs
Primer reads an offering memorandum the way an experienced analyst would. Upload the OM (PDF, any format), and Primer extracts the rent roll, financial summary, property details, and assumptions into structured data mapped to your underwriting model.
Where Primer goes beyond extraction: it cross-references numbers across sections of the OM automatically. If the rent roll total does not match the financial summary, Primer flags the discrepancy. If the broker's NOI calculation excludes a line item that appears in the T12, Primer catches it. Every extracted value is cited back to the source page and table, so you can verify in seconds.
Stop retyping OM data into spreadsheets
Upload an offering memorandum and get structured, cited data mapped to your model in minutes, not hours. Primer handles any format, flags discrepancies, and shows its work.
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