Let’s be real, our models probably aren’t broken. It probably feels that way with so many deals we have to trash. The debt service calc still adds up correctly. IRR formulas haven’t changed. What broke? The assumptions.
The 2010s weren’t just a bull run it was like the reincarnation of the Roaring Twenties. Easy money, loose credit, and a belief that the good times would never end. Just like the post-WWI boom, the decade rewarded speculation over fundamentals. You could overpay, underbuild, miss every lease-up milestone and still walk away clean thanks to cap rate compression and cheap refi debt. Caution was thrown at the wind, but the market forgave everything. And if not for COVID this easily could have been a 20 year run.
Just like the 1920s, it bred a false sense of genius. Everyone thought they were brilliant. In reality, they were just floating on free capital.
The Assumptions That Don’t Work Anymore
Most pro formas are still built like it’s 2017:
- Rent growth modeled at 4-6% annually, even in flat markets
- Interest rates capped at 5% “just in case”
- Exit cap rates magically lower than entry
- Lease-up timelines based on a red-hot 2021, not today’s slower demand
You don’t need a new model—you need new inputs. And you need to believe in the downside case just as much as the upside one.
The IRR Era Trained Us to Underprice Risk
Private equity trained a new generation out of B school to think in 3–5 year holds, backloaded IRR waterfalls, and capital stack gymnastics. But the truth is, IRR hides more sins than it reveals.
It doesn’t care if your year-one cash flow is negative.
It doesn’t care if your refinance depends on rates dropping.
It doesn’t care if you’re projecting appreciation you haven’t earned.
Robust IRR’s made people feel invincible. But in this market you’ll get buried in the new details.
What Underwriting Looks Like Today
- Can you cash flow in year one after the bank takes its piece?
- Are your rents defensible, or did you just pull them off CoStar?
- What happens if nothing goes right—and your exit is delayed 2 years?
This isn’t about pessimism—it’s about reality. The people who are still doing deals in this market? They’re not projecting perfection. They’re pricing in chaos—and still making money.
The lesson isn’t that underwriting is broken. It’s that the 2010s taught us to ignore risk, assume growth, and trust the market to save bad deals. That era is over. And now, only the people who remember how to price risk, control costs, and model the ugly scenarios are going to survive.
You don’t need a new spreadsheet. You need to stop trying to make it tell the story you want instead of the truth.