Cedar Vale Apartments: does the value-add plan justify the asking price?
A seven-year monthly pro forma for a 96-unit, 1996-vintage garden community in Greensboro, North Carolina, built from a 14-file due-diligence package. The model tests the seller’s $14.4 million ask against the investor’s return, coverage, and liquidity criteria. At that price, the plan returns the investors’ capital and little more.
A seller’s value-add story, tested independently.
“We want a pro forma we can defend, not one built to hit our targets.”
The seller has renovated 24 of 96 units and markets the remaining 72 classic units as the path to higher rents. The investor asked for an independent view before making an offer: what the property actually earns, what the renovation adds and how fast, how much equity it takes, whether the debt and the Year 3 refinance hold up, and whether to buy at the ask, offer less, or pass.
The investor supplied the lender’s loan indication, planning terms for the refinance, and the hold and exit parameters. Everything else, from current rents to renovation timing, had to be drawn from the property records and defended.
Against the mandate, one of six tests passes.
The investor set six acceptance criteria. At the asking price, the completed model clears only the liquidity test, and that one holds only because working capital was sized for it.
The liquidity pass is a design choice, not good news: holding $2.42M of working capital at closing is what keeps the pre-sale balance above $250,000 without capital calls, and it is also what pushes total equity past the $6.5M limit.
One model, every number traceable.
A monthly acquisition model covering revenue by unit group, the renovation ramp, operating expenses and taxes, capital spending, working capital, the acquisition loan, the Month 36 refinance, the sale, and levered returns. Inputs sit on four sheets; every material input carries a note naming its source record or explaining the judgment behind it.
Key cells from the Summary sheet. Blue values are inputs; black values are calculated by the model.
Acquisition
Acquisition Loan
Refinance
Project
Sale
Equity Returns
Selected rows from the Annual CF sheet, which rolls up the monthly schedule by ownership year. Year 7 includes the sale in December 2033.
| Year | 0 · 2026 | 1 · 2027 | 2 · 2028 | 3 · 2029 | 4 · 2030 | 5 · 2031 | 6 · 2032 | 7 · 2033 |
|---|---|---|---|---|---|---|---|---|
| Effective gross revenue | 1,388,836 | 1,510,501 | 1,642,801 | 1,700,358 | 1,750,922 | 1,802,992 | 1,856,613 | |
| Operating expenses incl. reserves | (761,726) | (785,801) | (810,812) | (833,787) | (857,113) | (881,105) | (905,782) | |
| Net operating income | 627,110 | 724,699 | 831,989 | 866,571 | 893,810 | 921,888 | 950,831 | |
| Construction costs | (917,707) | (658,055) | (74,085) | (236,885) | (131,285) | (74,085) | (74,085) | |
| Total debt service | (608,400) | (709,939) | (709,939) | (727,375) | (727,375) | (727,375) | (727,375) | |
| Cash flow after debt service | 20,737 | 21,555 | 122,050 | 139,197 | 166,435 | 194,513 | 468,448 | |
| Total levered cash flow | (7,769,600) | 20,737 | 21,555 | 987,195 | 139,197 | 166,435 | 194,513 | 6,279,746 |
| Working capital, ending balance | 2,420,000 | 1,500,267 | 835,417 | 761,332 | 524,447 | 393,162 | 319,077 | 0 |
| Cash-on-cash return | 0.3% | 0.3% | 1.6% | 1.8% | 2.1% | 2.5% | 6.0% |
Construction is paid from the working-capital reserve, so it does not reduce cash flow after debt service. Year 3 levered cash flow includes $865,145 of net refinance proceeds; Year 7 includes $5,811,299 of net sale proceeds and the release of unused working capital.
The Construction Budget sheet. Interior costs come from the contractor’s line-item bid; building-system replacements come from the condition report’s seven-year schedule. The model spreads each item evenly across its months.
| Item | Total | Months | Source |
|---|---|---|---|
| Interior renovation, 72 classic units | 871,673 | 5–22 | Contractor bid: 11 scope lines, 8% OH&P, price escalation |
| Unit HVAC replacements | 375,200 | 1–84 | Condition report: 67 systems |
| Parking lot overlay & restripe | 148,000 | 43–44 | Condition report: 2030 |
| General conditions & bond | 108,778 | 1–21 | Contractor, extended to 21 months |
| Water heater replacements | 96,250 | 1–84 | Condition report: 77 tanks |
| Clubhouse refresh | 68,000 | 3–5 | Contractor CA-01 |
| Life-safety & down-unit repairs | 62,490 | 1–3 | Condition report, immediate items |
| Exterior trim & repaint, all buildings | 52,000 | 55–56 | Condition report: 2031 |
| Amenities: lockers, dog park, pool furniture | 49,000 | 4–5 | Contractor CA-03, 06, 08 |
| Site LED lighting | 42,000 | 2–3 | Contractor CA-02 |
| Trim repair & paint, Buildings 5–8 | 28,800 | 4–6 | Contractor CA-04 |
| Deferred maintenance, short term | 21,670 | 4–9 | Condition report |
| Monument sign & wayfinding | 18,000 | 6–7 | Contractor CA-07 |
| Breezeway stairs & pool gate | 17,900 | 1 | Contractor CA-05, CA-09 |
| Permits & plan review | 9,500 | 1–2 | Contractor, owner items |
| Contingency (10%) | 196,926 | 1–84 | Contractor recommendation |
| Total capital budget | 2,166,187 | 1–84 | Construction Budget!C47 |
Selected cell notes, as written in the workbook. Each material input is labeled either as a sourced figure or as an analyst assumption with its reasoning.
Renovated rent set at the current asking rent for 1BR renovated units (rent roll). Existing renovated leases average $1,257 and recent renovated leases sign at asking. Implies a $164 lift over in-place classic rent. The seller’s claim of a $165 average and up to $185 was not fully adopted.
Renovation pace set at 4 units per month (Months 4 to 21), not the 6 in the investor’s plan, because classic lease expirations and turnover (50 move-outs in the T-12; classic expirations drop to 3 per month in Jul to Sep 2027) do not reliably free 6 units a month.
2027 notice of value: real property $11,580,000 plus business personal property of about $166,000. This is the value the 2027 bill will use, not the 2026 historical value of $8,592,000.
T-12 account 4100 and the utility file. The seller records RUBS as other income; reclassified as a negative expense so reimbursements are counted once.
T-12 R&M of $97,535 less one-time items (roof wind repair, water mitigation, freeze repairs, pool pump, and a condenser treated as capital) = $61,935, plus 3%.
Stabilized vacancy of 5.5% from the T-12 and leasing reports, plus about 3.1% for renovation downtime and the three down units in Year 1. Year 2 8.5%, Year 3 6.0%, then 5.5%.
Inspect the full workbook
Browse the model below, or open it in Google Sheets to inspect the input notes.
From the seller’s $680K to a Year 1 NOI of $627K.
The T-12 is the starting point, not the answer. Cleaning it up raises NOI; the costs of new ownership and the renovation year bring it back down below the seller’s figure.
Normalize first. The seller’s T-12 shows $679,509 of NOI. It includes an $11,850 insurance payment booked as income, which comes out, and $67,800 of one-time repairs and owner-level costs (a wind-damaged roof, water mitigation, freeze repairs, a leak, a pool pump, a condenser, owner legal fees, and an affiliate asset-management fee), which are added back. That gives a clean run-rate of $735,459.
Then price in the new owner. The county’s 2027 reappraisal raises the assessed value by 37.5%, adding $43,434 of property tax. A new insurance policy adds $18,618. The model deducts a $24,000 capital reserve inside NOI. A replacement manager at 3.5% saves $9,945, and renovation downtime roughly cancels a year of rent growth.
Utility reimbursements the seller books as income are moved into expenses as a credit, so they are counted once.
View data
| Step | Amount |
|---|---|
| Seller T-12 NOI | 679,509 |
| Remove insurance claim income | (11,850) |
| Add back one-time & owner costs | 67,800 |
| Normalized T-12 NOI | 735,459 |
| Revenue: downtime net of growth | (4,202) |
| Property taxes, 2027 value | (43,434) |
| Insurance, new policy | (18,618) |
| Other operating costs | (28,040) |
| Management fee at 3.5% | 9,945 |
| Capital reserve in NOI | (24,000) |
| Model Year 1 NOI | 627,110 |
The premium is real. It is also slower and costlier than marketed.
The rent lift is supported by the seller’s own renovated units. What changes is how fast it arrives and what it costs, once the contractor’s bid and the building’s aging systems are counted.
View data
| Group | Units | In-place | Stabilized | Lift |
|---|---|---|---|---|
| 1BR Classic | 36 | $1,111 | $1,275 | +$164 |
| 1BR Renovated | 12 | $1,257 | $1,275 | +$18 |
| 2BR Classic | 36 | $1,307 | $1,495 | +$188 |
| 2BR Renovated | 12 | $1,479 | $1,495 | +$16 |
What the renovation adds
Classic units move to the rent the seller’s renovated units already command: $1,275 for a one-bedroom and $1,495 for a two-bedroom. That is a lift of $164 and $188 over in-place classic rents, or about $157,000 a year of gross rent once all 72 units turn. The 24 units already renovated only roll to asking rent; they get no second premium.
Against $2.17M of total construction, that premium is a 7.25% gross return on cost. After vacancy, operating costs, and reserves, the stabilized yield on total project cost is 4.58%.
Vacancy runs at 9.0% in Year 1 and 8.5% in Year 2 while units are offline, 6.0% in Year 3, then 5.5%.
Close to the seller’s $165 average, but the model does not adopt the “up to $185” claim. It uses current renovated asking rents, which recent renovated leases achieve.
The bid covers second-bath fixtures and safety upgrades the seller’s program skipped. Price escalation for later starts and a 10% contingency are added on top.
Classic lease expirations thin out in mid-2027, so the program runs Months 4 to 21 and the full premium arrives by Month 24, not Month 18.
View data
| Year | NOI |
|---|---|
| 1 (2027) | 627,110 |
| 2 (2028) | 724,699 |
| 3 (2029) | 831,989 |
| 4 (2030) | 866,571 |
| 5 (2031) | 893,810 |
| 6 (2032) | 921,888 |
| 7 (2033) | 950,831 |
Capital beyond the kitchens
The condition report shows 39 heat pumps and 29 water heaters already past their expected life, a parking lot that needs an overlay by 2030, and life-safety items at the breezeway stairs. Those needs are budgeted as capital rather than left to a thin reserve.
NOI reaches the broker’s “stabilized” level of about $951,000 only in Year 7, with four more years of rent growth behind it.
The debt costs more than the property earns.
At a 4.35% going-in yield, a 6.50% loan on a 30-year schedule works against the equity from the first month. The interest-only year hides it; the amortizing payment and the refinance test expose it.
Where the equity goes
Year 1 interest of $608,400 leaves $20,737 of cash flow after debt service. Once amortization starts, annual debt service of $709,939 is greater than Year 1 NOI, and cash flow after debt service stays under $200,000 a year until the sale year.
The refinance is sized on NOI, not on the purchase price. At the planned 70% LTV it misses the 1.30× test at any price; meeting it would take roughly a 64% LTV, which would absorb nearly all of the $865,000 cash-out.
View data
| Point | Balance |
|---|---|
| Closing (Month 0) | $2,420,000 |
| End of Year 1 | $1,500,267 |
| End of Year 2 | $835,417 |
| End of Year 3 | $761,332 |
| End of Year 4 | $524,447 |
| End of Year 6 | $319,077 |
| Lowest pre-sale (Month 83) | $251,166 |
| Released at sale (Month 84) | $0 |
Seven years to get the capital back.
Investors put in $7,769,600 and receive $7,809,378. Almost three-quarters of that arrives at the sale, which makes the exit the single most important assumption in the model.
View data
| Component | Amount | Share |
|---|---|---|
| Equity invested | 7,769,600 | |
| Operations (incl. unused reserve) | 1,132,934 | 14.5% |
| Refinance, net | 865,145 | 11.1% |
| Sale, net of costs and payoff | 5,811,299 | 74.4% |
| Total returned | 7,809,378 | 100% |
What drives the result
The exit carries the return. The sale delivers $5.81M after costs and loan payoff, 74% of all cash returned. Non-sale cash flows contribute 15%, including about $245,000 of unused working capital returned at the end.
NOI grows 52%, value grows 9%. The model buys at a 4.35% yield and sells at a 6.25% cap rate on forward NOI of $980,665. The renovation adds income, but the cap-rate gap absorbs most of it: the $15.69M sale price sits below the $16.88M total cost of the project.
A lower exit cap rate would raise the sale price, but the 6.25% exit was set by the investor for a 37-year-old asset at sale. Relying on a tighter exit to rescue the deal would be the kind of assumption the brief asked to avoid.
Pass at the asking price.
At $14.4M, the renovation plan works operationally but not financially.
The base case returns $7.81M on $7.77M of equity over seven years: a 0.08% levered IRR and a 1.01× multiple, against a 15% and 1.8× mandate. It fails both debt-coverage tests and needs more equity than the investor allows. The asking price does not work; a materially lower basis would be required before reconsidering the acquisition.
The entry yield is below the cost of debt
Year 1 NOI yields 4.35% on price, while the acquisition loan’s amortizing payment costs about 7.6% of the balance each year. Leverage reduces returns from day one.
The renovation does not close the gap
Stabilized yield on total project cost reaches 4.58%, below the 6.25% exit cap rate. The modeled sale price lands under what was spent to buy and improve the property.
The refinance cannot carry the plan
The Month 36 loan misses the 1.30× coverage test at the planned 70% LTV. Because it is sized on NOI, a lower purchase price does not fix it; a smaller loan does, and that removes the cash-out.
Holding the model’s Year 1 NOI and the 65% loan constant, acquisition coverage reaches 1.25× only near $10.2M (0.88× × $14.4M ÷ 1.25). That is a coverage threshold, not a full answer: any counteroffer should be re-run through the complete model to confirm the return and equity tests before a letter of intent.
Plan the Month 36 loan at roughly 64% LTV so it meets 1.30× coverage, and treat the refinance as a rate reset rather than a source of distributions.
The 2027 tax rates, applied to a 37.5% higher assessed value; lease-up results on the first renovated units; a bound insurance quote; and a seller credit for the open water-damage claim and the three down units.
The exit cap rate, the achieved renovation premium, the tax rate after reappraisal, and building-system capital. The thesis needs all four to hold at or better than underwritten levels; the asking price leaves no margin if any of them slips.
From a data room to a defensible model.
The pro forma was populated from a due-diligence package of 14 records, the kind a seller, property manager, contractor, and lender would send. Each record fed specific inputs; conflicts between them were resolved in favor of the documented figure, and the reasoning was left in the workbook.
Reconcile
Tie the rent roll, leasing reports, receivables, and T-12 to the same 96 units and the same twelve months.
Normalize
Strip one-time repairs, owner costs, and misbooked income; reclassify reimbursements; separate vacancy, bad debt, and concessions.
Translate
Convert records into model inputs: rents by group, fees per unit, costs per unit, the 2027 tax value, and a renovation budget spread across all units.
Review & interpret
Check the monthly cash flow, working capital, debt schedules, and model checks, then test the results against the investor’s criteria.
Deal terms
- Assignment & criteriaMandate, loan and exit terms
- Offering memorandumSeller and broker claims
Rent & leasing
- Rent roll & lease abstractRents by group, lease expirations
- Unit status & leasingOccupancy, turnover, downtime
- Receivables & concessionsBad debt, credits
- Other-income schedulesFees per unit
Operations
- T-12 statementMonthly income and expenses
- Prior annual statements2024 and 2025 trend
- Utilities & reimbursementsGross cost and RUBS recovery
- Payroll, contracts, managementStaffing and fee base
Fixed costs
- Tax notices & bills2027 reappraisal value
- Insurance, claims, renewalNew-owner premium
Capital
- Condition reportLife safety, system ages, reserves
- Contractor budgetScope, unit pricing, schedule