CRE 101 · deweyluong.realtor

Sensitivity Analysis Explained: How a Georgia Commercial Deal Holds Up When the Assumptions Move

Sensitivity analysis is the step in commercial real estate underwriting where you stop trusting one forecast and move the key assumptions — net operating income (NOI) and the capitalization rate — one at a time and together, to see how much value and debt coverage actually survive. On the made-up Gwinnett example on this page, a property with $150,000 of NOI is worth about $2,307,692 at a 6.50% cap rate. Move the exit cap alone to 7.50% and the value falls to $2,000,000 — about $307,692 gone, a 13.3% drop, with no change to the building at all. Worse, the loan on the deal passes its 1.25x coverage test by only about $1,576 of NOI: a 1.1% income slip puts it under the lender's line. One base case would have hidden both facts. By Túy “Dewey” Luong, CCIM — Founding Broker, SERHANT. Atlanta · 318 closed sales / $281.2M career volume · 678-707-2498

Túy “Dewey” Luong, CCIM, Founding Broker, SERHANT. Atlanta

The worked example uses made-up, rounded numbers to teach the mechanics. This page is general education, not financial or legal advice.

One-way, two-way, and scenario: three different tools

One-way sensitivity: move one input, hold everything else. It answers: which single assumption does this deal live or die on?
Two-way sensitivity: move two inputs together in a grid — usually NOI and cap rate. It answers: what is the value across the realistic combinations, not just the corners you hope for?
Scenario analysis: move several inputs at once as a coherent story — base case, downside case, stress case. It answers: what happens if the world moves the way it actually moves, with rents, vacancy, and rates shifting together?
The order matters: start one-way to find the fragile input, then two-way on the pair that matters, then a scenario if the deal still looks close. See also discounted cash flow and break-even occupancy.

Worked example, part 1: value sensitivity (made-up numbers, labeled as such)

A made-up Gwinnett retail property with NOI of $150,000. Value is NOI divided by cap rate — so both inputs move the answer:

Cap rate alone, NOI held at $150,000: 5.50% → about $2,727,273 · 6.00% → $2,500,000 · 6.50% → about $2,307,692 (base) · 7.00% → about $2,142,857 · 7.50% → $2,000,000. One point of cap rate costs about $307,692 of value — 13.3% — before a single tenant changes.
NOI alone, cap held at 6.50%: −10% ($135,000) → about $2,076,923 · −5% ($142,500) → about $2,192,308 · base ($150,000) → about $2,307,692 · +5% ($157,500) → about $2,423,077 · +10% ($165,000) → about $2,538,462.
Two-way grid (rows NOI, columns cap rate): at NOI $135,000: $2,250,000 at 6.00%, about $2,076,923 at 6.50%, about $1,928,571 at 7.00%. At NOI $150,000: $2,500,000, about $2,307,692, about $2,142,857. At NOI $165,000: $2,750,000, about $2,538,462, about $2,357,143. The corner a buyer fears — income down 10% and cap up 50 points — is about $1,928,571, roughly $379,121 under the base case. That corner, not the base, is what the price has to survive.

Worked example, part 2: the lender runs the same test

The loan: $1,400,000 at 7.00%, 25-year amortization — annual debt service about $118,739.
Base coverage: $150,000 ÷ $118,739 = 1.26x DSCR — just over the common 1.25x lender minimum.
The break-even: 1.25x coverage needs NOI of about $148,424. The cushion is about $1,576 of NOI — 1.1%. One small vacancy or one expense surprise and the deal fails the test it passed on closing day.
Downside coverage: at NOI −5% ($142,500), DSCR is 1.20x; at −10% ($135,000), 1.14x. Both are under the line. The sensitivity table does not say do not buy — it says the price, the loan size, or the reserves have to change before this deal is safe.

How to use a sensitivity table without fooling yourself

Move the inputs that can actually move: market rents, vacancy, expense growth, exit cap, and interest rate. Testing inputs that are contractually fixed wastes the table.
Use honest ranges: a ±2% NOI band on a property with one expiring lease is decoration. Range each input by what the market has actually done, not by what keeps the answer pretty.
Find the break-even, not just the spread: the most useful number in the table is where the deal stops working — the NOI floor for coverage, the cap rate where value meets the loan balance. Price and structure to that point.
Never tune the table to reach yes: if the only way the deal works is the friendliest corner of the grid, the table has already given its answer.

Cho nhà đầu tư người Việt

Phân tích độ nhạy (sensitivity analysis) là bước kiểm tra xem một thương vụ bất động sản thương mại còn đứng vững không khi các giả định thay đổi — thay vì chỉ tin vào một con số dự báo duy nhất. Ví dụ giả định trên trang này: một bất động sản bán lẻ ở Gwinnett với thu nhập ròng NOI $150.000. Ở tỷ lệ hoàn vốn (cap rate) 6,50%, giá trị khoảng $2.307.692. Chỉ cần cap rate tăng lên 7,50% — tòa nhà không thay đổi gì — giá trị rớt xuống $2.000.000, mất khoảng $307.692, tức 13,3%. Về khoản vay $1.400.000 với chi phí nợ khoảng $118.739 mỗi năm: hệ số bao phủ nợ DSCR ở mức cơ sở là 1,26x, chỉ vừa qua mức tối thiểu 1,25x mà ngân hàng thường đòi. Mức NOI tối thiểu để đạt 1,25x là khoảng $148.424 — nghĩa là khoản đệm chỉ khoảng $1.576, tương đương 1,1% thu nhập. NOI giảm 5% là DSCR xuống 1,20x; giảm 10% xuống 1,14x — cả hai đều dưới chuẩn. Bài học: trước khi mua, hãy tự hỏi số tiền thuê giảm bao nhiêu, hay cap rate tăng bao nhiêu, thì thương vụ hết hiệu quả — và ra giá dựa trên điểm gãy đó, không phải dựa trên kịch bản đẹp nhất. Đây là thông tin giáo dục chung, không phải tư vấn tài chính hay pháp lý.

Frequently asked questions

What is sensitivity analysis in commercial real estate?

It is the underwriting step where you move the key assumptions — NOI, cap rate, rent growth, vacancy, interest rate — one at a time and in combination, and watch what happens to value and debt coverage. In the worked example, moving the cap rate from 6.50% to 7.50% alone cuts value from about $2,307,692 to $2,000,000.

What is the difference between one-way, two-way, and scenario analysis?

One-way moves a single input to find the fragile assumption. Two-way moves a pair — usually NOI and cap rate — across a grid of combinations. Scenario analysis moves several inputs together as one coherent story, such as a downside case where income falls while cap rates rise.

Which input usually moves value the most?

The cap rate, because value is NOI divided by the cap rate and the divisor hits every dollar of income at once. In the worked example, a one-point cap move costs about $307,692 (13.3%), while a 10% NOI move at a fixed cap changes value by about $230,769 in either direction.

How does sensitivity analysis change the loan, not just the price?

Lenders run the same test as a coverage floor. In the worked example the $1,400,000 loan shows 1.26x DSCR at base NOI, but the 1.25x break-even is NOI of about $148,424 — a cushion of only about $1,576. A buyer who sees that asks for a smaller loan, a lower price, or larger reserves before closing.

Phân tích độ nhạy khác gì với việc chỉ xem một dự báo?

Một dự báo duy nhất cho bạn một con số; phân tích độ nhạy cho bạn biết con số đó mong manh đến mức nào. Ví dụ trên trang này: giá trị mất 13,3% chỉ vì cap rate tăng một điểm, và khoản vay chỉ còn cách điểm gãy bao phủ nợ khoảng 1,1% thu nhập. Biết điểm gãy trước khi mua mới là mục đích của phân tích.

Want a second set of eyes on whether a Georgia deal survives its own downside case? Call Túy “Dewey” Luong, CCIM at 678-707-2498 or see SERHANT. Atlanta.