Lenders typically use trailing-3 annualized NOI to capture recent momentum and trailing-12 NOI to smooth seasonal or one-time effects. Multifamily underwriting often relies on trailing-3 (responsive to lease-up); office and retail more often use trailing-12 to dampen tenant- rollover noise.
Why use both?
Trailing-3 captures recent improvements that have not yet shown in 12-month averages, useful on lease-up multifamily or post-renovation cash flow. Trailing-12 smooths short-term anomalies. Lenders often size to the lower of the two adjusted for stress assumptions, making sure proceeds are defensible across the property's recent operating profile.
What adjustments do lenders make?
Vacancy floor (often 5 percent regardless of in-place), market-rate management fee (3 to 4 percent of effective gross income even if owner-managed), property tax full accrual at the post-acquisition assessed value, and reserves for replacement based on lender's standard per-unit or per-square-foot.
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1