Pro Forma
A pro forma is a projected financial statement showing what a property's income and expenses are expected to be after stabilization — used to justify purchase price and financing but almost always optimistic.
What it means
Pro forma projections are the seller's story of what the property could become — post-renovation, post-lease-up, post-rent-increase, post-expense-reduction. They include rent growth assumptions, vacancy assumptions, expense inflation rates, and (critically) exit cap assumptions.
Every pro forma should be stress-tested. Ask: what happens if rent growth is 1% instead of 3%? What if exit cap is 50 bps higher than entry? What if vacancy holds at 10% instead of dropping to 5%? If the deal only works on best-case pro forma, it is a bad deal.
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