A pro forma is a forward-looking projection of income, expenses, and value. Buyers discount pro forma heavily — in-place numbers are what price buildings, not aspirational projections.
A pro forma combines actual current numbers with assumptions: rent growth, renovation ROI, expense trajectories, vacancy trends. Sellers present pro forma to illustrate upside. Buyers underwrite discounted versions or their own independent models.
The seller-buyer gap: sellers often price on pro forma NOI ("if rents were pushed to market"). Buyers underwrite in-place NOI plus realistic capture. The delta between these two numbers is where deals stall at price discovery.
In LA multifamily, pro forma-based pricing is the #1 cause of deals that sit on the market. Buyers in 2026 — particularly institutional — have tightened diligence. Pro forma rent growth assumptions above 5% on pre-1978 RSO inventory are rejected outright post-July 2026.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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