Real estate syndicators are in the business of persuasion — and the most persuasive element of any offering is the projected return. “18% IRR” or “2.5x equity multiple” are compelling numbers that can cloud judgment if investors do not understand how projections are constructed and how often they are actually achieved.
How Projections Are Built
A real estate projection begins with revenue assumptions — typically some combination of in-place rents plus an underwriter-assumed growth rate. Common assumptions of 2–4% annual rent growth may be reasonable in strong markets and optimistic in weak ones. Expense assumptions follow — again, the underwriter makes choices that significantly affect projected NOI. Exit assumptions are perhaps the most consequential: the assumed exit cap rate determines the projected sale price, and small differences in cap rate assumptions create enormous differences in projected returns.
Base Case vs. Actual Results
Academic research and practitioner surveys consistently show that actual real estate investment returns lag base case projections by meaningful amounts. This “projection bias” exists because sponsors have incentives to present optimistic projections to raise capital, and because human beings are generally overconfident in their ability to execute complex plans in uncertain environments.
Sophisticated investors account for projection bias by applying haircuts to sponsor projections — reducing assumed rent growth by 1–2%, increasing assumed expenses, and widening the exit cap rate by 25–50 basis points. If the deal still looks attractive under these adjusted assumptions, confidence in the actual return is higher.
What RIYT Provides
We present base case, downside, and severe stress scenarios in all our offering materials — and we share our track record of actual versus projected returns on completed investments. We believe transparency about outcomes, not just promises, is how trust is built over time.