Every commercial real estate deal starts with an offering memorandum. Brokers send them by the dozen — attached to emails, embedded in blast campaigns, dropped into your inbox with a subject line promising "rare opportunity." But knowing how to read an OM in commercial real estate separates the professionals who find deals from those who chase them.
An offering memorandum is a sales document. That's not a criticism — it's a fact you need to internalize before opening a single page. The listing broker's job is to present the property in its best light. Your job is to read between the lines.
What Is an Offering Memorandum?
An offering memorandum (OM) is a marketing package prepared by the listing broker to present a commercial property for sale. It typically runs 20–60 pages and consolidates everything a prospective buyer needs to evaluate the opportunity — financials, tenancy, location, market context, and the investment thesis.
Think of it as the broker's best argument for why you should buy. That framing matters when you're reading one.
The Executive Summary: Read It Last
Most OMs open with an executive summary — a page or two of highlights, key metrics, and the investment thesis. Ironically, it's the least useful section to start with.
Here's why: the executive summary cherry-picks the best numbers. "Below-market rents with 30% upside!" sounds compelling until you read the rent roll and realize those below-market leases expire in 8 months with no renewal options.
What to do: Skim the executive summary for orientation, then come back after you've read the financials. You'll know immediately which claims hold up.
Financial Analysis: Where the Real Story Lives
This is the section that matters most. A well-prepared OM includes:
- Current income and expenses (trailing 12 months or annualized)
- Pro forma projections (the broker's optimistic case)
- Cap rate (usually calculated on the pro forma, not actuals)
- Price per square foot or unit
What to Scrutinize
Trailing vs. pro forma. Always look at trailing financials first. The pro forma assumes rent bumps, reduced vacancy, and expense efficiencies that may never materialize. If the deal only works on pro forma numbers, it's speculative.
Expense ratios. Compare operating expenses as a percentage of gross income against market norms for the asset class. An unusually low expense ratio might mean the owner has been deferring maintenance — which becomes your problem.
Management fees. Some OMs exclude management fees to inflate NOI, especially if the property is owner-managed. Add 4–8% of effective gross income if it's not there.
Capital expenditure reserves. These are almost never in the OM's operating statement. Budget for them yourself — typically $0.15–$0.30/SF for commercial, $250–$500/unit for multifamily annually.
Calculate your own NOI from the raw income and expense data. Don't rely on the broker's summary numbers — they may use non-standard definitions or exclude line items.
The Rent Roll: Your Most Important Document
The rent roll tells you who's paying, how much, and for how long. It's the foundation of the income stream you're buying.
What to Look For
- Lease expiration schedule. If 40%+ of income rolls within 12–18 months, that's concentration risk. You need a re-leasing plan and budget.
- Rent escalations. Are increases fixed (2–3% annual), CPI-based, or flat? This drives your growth assumptions.
- Lease type. NNN, modified gross, or full-service gross? This determines who bears expense risk. (See our NNN lease guide for a deep dive.)
- Tenant creditworthiness. A 10-year lease means nothing if the tenant can't make it 10 months. Look up the tenants — are they regional chains, national credits, or single-location operators?
- Below-market vs. above-market rents. Compare in-place rents to market comps. Above-market rents create rollover risk; below-market rents create upside — but only if tenants stay.
Property Description and Photos
This section covers the physical asset — square footage, year built, construction type, lot size, zoning, and recent capital improvements.
Read between the lines:
- "Value-add opportunity" often means deferred maintenance
- "Well-maintained" with no recent capex history is a red flag
- A renovation from 2015 is 11 years old — not exactly "recently renovated"
What's usually missing: Environmental reports, roof condition assessments, HVAC age and status, and ADA compliance details. These come during due diligence, but their absence in the OM means you should budget for surprises.
Market Overview: Useful Context, Biased Framing
Every OM includes a market section with demographics, traffic counts, employment data, and comparable sales. The data is usually accurate (sourced from CoStar, census, or similar). The framing is not.
What to watch for:
- Comp selection bias. Comparable sales will be chosen to support the asking price. Look for what's excluded — were there lower-priced comps in the same submarket?
- Demographic cherry-picking. A 5-mile radius might look great while the 1-mile radius tells a different story.
- Trend extrapolation. "Rents have grown 4% annually" doesn't mean they'll continue — especially in a rising rate environment.
Do your own market research. Pull comps from independent sources, drive the submarket, and talk to local brokers who aren't listing the deal.
The Offering Terms
Buried near the end (or sometimes in a cover letter), you'll find the actual terms — asking price, guidance on offers, timeline, and any seller requirements.
Key details:
- Asking price vs. guidance. Some deals are "unpriced" to create a bidding dynamic. If there's a call for offers with a deadline, expect competition.
- Financing assumptions. Some OMs include debt scenarios. Verify the rate assumptions — they're often stale by the time you read them.
- Due diligence period. Understand what the seller expects in terms of timeline and earnest money.
How to Process OMs at Scale
If you're active in CRE, you're not reading one OM — you're fielding dozens per week from broker blasts and email lists. The challenge isn't reading a single OM carefully. It's triaging the volume to find the ones worth reading carefully.
A systematic approach helps:
- Screen on headline metrics first — cap rate, price, asset type, location
- Check the rent roll before the pro forma — income quality matters more than projected returns
- Flag deals for deep review rather than trying to analyze everything that hits your inbox
- Track what you've seen — shopped deals resurface constantly with different brokers
Listserved automatically extracts key deal data from broker emails — property details, asking price, cap rate, and more — so you can screen opportunities without opening every attachment. See how it works →
OM Red Flags Checklist
Before you spend time underwriting, scan for these warning signs:
- No trailing financials — only pro forma numbers provided
- Abnormally low vacancy assumption (under 3% for most asset types)
- Management fee excluded from operating expenses
- Single-tenant concentration without creditworthy tenant
- Lease expirations clustered in the near term
- Stale market data (comps older than 12 months)
- No mention of deferred maintenance on an older property
- Price per SF significantly above recent comps without justification
Next Steps
Reading OMs effectively is a skill that compounds — the more you review, the faster you spot both opportunities and problems. Combine it with a solid due diligence process and a system for managing your deal flow, and you'll spend less time sorting through noise and more time on deals that actually pencil.
Ready to streamline how you receive and screen deals? Try Listserved for free →