Lenders apply standard NOI adjustments to convert borrower operating statements into underwritten NOI : vacancy floor (often 5% to 7%), market management fee (often 3% to 4% of EGI), per-unit/per-SF replacement reserves , reassessed real estate taxes, and a normalized expense load. Underwritten NOI is typically 5% to 10% lower than borrower NOI.
What is the vacancy floor?
Most lenders apply a minimum economic vacancy of 5% (multifamily) or 7% to 10% (commercial), even on a 100%-occupied trailing-twelve. The floor protects against short-term performance not being sustainable. The lender uses at least the vacancy floor, and uses actual vacancy when actual vacancy is higher.
Why is management fee adjusted?
Many sponsor-managed properties show no management fee on the operating statement because the sponsor's affiliate manages it without charging arms-length. Lenders apply a market management fee (3% to 4% of EGI on multifamily; 2% to 3% on commercial) to normalize for what an outside manager would charge.
What are replacement reserves?
An underwriting allowance for capital replacement: roof, HVAC, parking, common area, in-unit refresh on multifamily. Standard floors: $250 to $400 per multifamily unit per year; $0.20 to $0.50 per SF per year on commercial. The reserve hits underwritten NOI even if it does not appear on the borrower's statement.
Sources
- Multifamily Market Commentary · Fannie Mae Economic & Strategic Research · 2026-Q1
- Multifamily Research and Outlook · Freddie Mac Multifamily · 2026-Q1
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1