What You Already Know

You can build the pro forma. That is not a small thing — it is the whole foundation of this course. But you are about to use it for something you have never used it for: not to author a loan, but to read one someone else already wrote.

You can compute NOI. You can pick a cap rate and defend it. You can size a loan to a coverage ratio, run a debt yield, and tell me whether a deal pencils. Good — this course does not re-teach any of that, and it will assume you never need it re-taught.

But notice what you were doing when you learned those tools. You were authoring. At origination, the pro forma is a claim about the future: your NOI is a projection, your cap rate is an opinion, your DSCR is the coverage you are underwriting to. Every number is forward-looking, produced at a single moment, resting on assumptions you chose. Underwriting is an act of authorship, and like all authorship it is an argument for a conclusion you have already decided you want.

Reading credit is the opposite motion. The loan is closed. The assumptions were someone else’s, made years ago, and the outcome is no longer a projection — it is a record, updating quarter after quarter on the public tape, indifferent to what anyone hoped. Your job flips from author to reader; your material flips from a claim to a history. The pro forma said what the loan should do. The tape shows what it did. The gap between those two is where this entire discipline lives.

This reframes each tool you already own:

• NOI stops being your projection and becomes a reported series you watch for drift — and, more importantly, for the drift’s cause, which the number alone won’t tell you.
• DSCR stops being a sizing target and becomes a trajectory. At origination you cared about its level; on the tape you care about its slope.
• The cap rate — your opinion at closing — is now the market’s opinion, and it moves against the borrower whether or not anything about the building changed.
• Debt yield is your bridge, and it is worth pausing on. It is the one metric that does not flatter anyone, because it ignores both the cap rate and the interest rate: just NOI over loan balance. It cannot be dressed up by a friendly appraisal or a low coupon. That property — immune to the two most negotiable inputs — is exactly why it survives as a reader’s lie detector. Hold onto it.

So bring everything you know. None of it is wasted; all of it is repurposed. The move you are learning is not new arithmetic. It is a new stance toward the same arithmetic: standing on the outside of a loan you did not write, reading the record it is leaving, and asking not “does this pencil?” but “what is this telling me, and is the story the numbers imply the real one?”