Updated August 16, 2026
I write offering memoranda for a living, so take this in the spirit it is offered: an OM is a marketing document. It is not dishonest — the good ones are scrupulously accurate — but it is written to present a building in its best true light, and there is a difference between accurate and complete. Learning to read what an OM does not say is the fastest way for a buyer to get better at this.
Almost every OM shows two columns: current and pro forma. The current column is what the building does. The pro forma is what it could do if every unit turned at market rent and expenses behaved.
The pro forma is not a lie. It is a model, and it embeds assumptions that belong to whoever built it.
Ask what turnover rate it assumes. A pro forma that reaches market rents in three years on a building where nobody has moved in fifteen is arithmetic, not a forecast.
Ask where the market rent came from. Recent leases in the same building are evidence. Asking rents on listing portals are not.
Ask what renovation cost is assumed per unit to achieve that rent, and whether it appears anywhere in the return.
The honest use of a pro forma is as a statement of the upside's shape. The dishonest use is as the number you underwrite to.
Income is verifiable — leases, bank deposits, the registry. Expenses are where a building can be made to look better without anything untrue being written.
Insurance is the one to check first, and it is often the largest gap. The statement shows the seller's premium. You will pay yours, in a market where habitational insurance has repriced hard since the January 2025 fires. Get your own quote in week one.
Property tax is almost always understated. The seller's line reflects their assessed value, which on a long-held LA building may be a fraction of what yours will be after reassessment at your purchase price. This single line item is routinely the biggest expense surprise a first-time buyer meets.
Management may show as zero if the seller self-manages. Your model should carry a market management cost whether or not you intend to pay it, because your time is not free and your lender may require professional management anyway.
Reserves and capital expenditure often do not appear at all. A roof does not fail on a schedule that suits an operating statement.
The compliance file. Registration status, the registry history, LAHD complaint and inspection records, open citations, retrofit status. Rarely in an OM, always material. Ask for it explicitly.
The turnover history. How many units have actually turned in the last five years, and what they achieved. This is the single most useful number for underwriting an LA rent-controlled building, and it is almost never in the marketing package. Ask.
The tenant-level detail. Length of tenancy per unit, which drives both the rent gap and, on a no-fault termination, the relocation tier that would apply.
Anything pending. An eviction in progress, a habitability complaint, a buyout negotiation, a claim. Disclosable, but often disclosed in the seller's disclosure package rather than the marketing document, and sometimes only on request.
Why the seller is selling. Never in the OM, frequently the most informative single fact about the deal.
Photographs are chosen. A building shot only from the good corner, or only in exterior, is telling you something. Ask for a unit-by-unit set.
"Value-add opportunity" usually means below-market rents, and sometimes means deferred maintenance. Both are fine. Find out which.
"Priced to sell" and "motivated seller" tell you about the seller's position, which is worth knowing.
"Proforma cap rate" in a headline is a red flag not because it is wrong but because it is the wrong number to lead with. Underwrite to in-place.
To be fair to the format, the strong ones give you a great deal:
When you receive one like that, it usually means the seller has prepared properly — which correlates strongly with an escrow that closes without a fight.
Should I trust the numbers in an OM?
Trust the in-place numbers enough to bid, and verify all of them in diligence. Treat the pro forma as the seller's view of the upside rather than as a forecast you are buying.
What should I ask for that is not in the package?
Rent registry history, LAHD compliance records, five-year turnover history with achieved rents, renovation costs on recent turns, and your own insurance quote. That list separates serious buyers from browsers, and good brokers respect it.
Is a broker allowed to publish a pro forma?
Yes, and it is standard practice, provided projections are clearly identified as projections rather than presented as current income. The line that matters is between labeling something as a projection and blurring it into the in-place figures.
Why do some buildings have no OM at all?
Off-market and quietly marketed deals often do not. That is not a warning sign in itself, but it means the burden of assembling the information sits entirely with you.
The best buyers I work with read an OM in about ten minutes and then send a list of what was not in it. That list is the actual diligence, and it is the same list every time: registry, compliance, turnover history, achieved rents on recent turns, and their own insurance quote. Ask for those five things on every building and you will underwrite better than most of the people bidding against you.
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