Chapter 6: Build the Stabilized / Value-Add Case

Build the Stabilized / Value-Add Case

Translate the business plan into stabilized NOI and stabilized value, then compare those conclusions explicitly against the in-place case and total basis.

Decision output: Stabilized Value Conclusion. Case requirement: compare primary and stabilized cases explicitly.

Inputs

Inputs

  • Renovation scope, capex per unit, downtime assumptions, and expected rent premiums.
  • Lease-up timing and the stabilized occupancy target.
  • All-in basis assumptions that include the business-plan cost burden.

Example card

Stabilized case built from explicit rent-lift and timing assumptions

The business plan assumes 96 classic units receive $11K per door renovations, achieve $165 monthly rent lift, and stabilize over 18 months rather than instantly.

  • Phasing matters because downtime and labor drag the realized lift.
  • CapEx belongs in total basis, not hidden inside a heroic value conclusion.

Example card

Yield on cost confirms whether the plan creates value

If total stabilized basis is $35.6M and stabilized NOI is $2.34M, the plan yields 6.57% on cost. That should be compared against a believable exit cap, not a wishful one.

Analysis

How to analyze it

yield on cost = stabilized NOI / total stabilized basis

yield on cost = stabilized NOI / total stabilized basis
The stabilized story only creates value when the resulting yield clears a believable exit cap spread.

Build the stabilized case from explicit operational steps rather than a single rent-growth plug. The analyst should show how the plan gets from today's NOI to tomorrow's NOI.

Output

What output you should produce

Output artifact: Stabilized Value Conclusion

  • A stabilized NOI and stabilized value conclusion.
  • A comparison against the in-place value and the all-in basis.
  • A statement about whether the business plan truly creates value or just shuffles assumptions.

Common mistakes

Common mistakes

  • Using stabilized rents with in-place expenses.
  • Ignoring downtime, concessions, or renovation phasing.
  • Treating stabilized value as if it cancels the in-place risk today.

Price meaning

What this means for price

The stabilized case tells you what the upside might justify if execution goes right. It does not erase the need to buy the deal at a price that still works before stabilization arrives.