{"type":"rich","version":"1.0","provider_name":"Transistor","provider_url":"https://transistor.fm","author_name":"Climate-Ready Real Estate Investing","title":"Stress-Testing Exit Assumptions","html":"","width":"100%","height":180,"duration":631,"description":"EPISODE DESCRIPTION The most dangerous number in most LP presentations is not the going-in cap rate. It is the exit cap rate. Purchase price, renovation budget, and rent growth are all scrutinized at the investment committee. The exit cap rate is modeled, presented, and then — in practice — trusted. Most underwriting teams apply a modest adjustment to the entry cap, stress it lightly for market direction, and move on. What most models do not do is test whether the exit cap rate is stable under climate stress.This Strategy & Underwriting brief builds a four-part exit stress test — one dimension per signal — applied to a three-building, 120,000 square foot Class A office park in western Sydney, Australia, acquired in 2022 at a 5.75 percent cap rate for AUD $48 million with a 2027 exit target. By 2026, insurance has risen 62 percent to AUD $680,000 annually; HVAC costs are running AUD $95,000 above model; total annual NOI drag is AUD $355,000; and the DSCR has fallen from approximately 1.47x to approximately 1.28x. The 5.50 percent exit cap assumption is under review before the hold period has ended.The four stress test dimensions — insurance cost at exit (Signal 1), NABERS certification gap and buyer pool depth (Signal 4), lender availability under APRA CPG 229 (Signal 2), and chronic stress and AASB S2 disclosure burden (Signal 6) — stack to approximately 125 basis points of cap rate expansion in the moderate climate scenario, producing an exit value of approximately AUD $35.6 million versus the original AUD $56.4 million. A 43 percent value reduction from two operating line items. The NABERS upgrade that would have addressed the largest single driver of that expansion cost AUD $1.8 to $2.4 million at acquisition — a fraction of the value destroyed.Episode SummaryEpisode 20 is the Strategy & Underwriting brief that closes the month’s analytical arc by stress-testing the exit assumption — the number that most underwriting models treat as the least uncertain...","thumbnail_url":"https://img.transistorcdn.com/edaVSiW7TDXFb72yvtrmHy0LDmwIgx2BDQFH-qalgqw/rs:fill:0:0:1/w:400/h:400/q:60/mb:500000/aHR0cHM6Ly9pbWct/dXBsb2FkLXByb2R1/Y3Rpb24udHJhbnNp/c3Rvci5mbS9hNmVk/NWUyYzI0MzJhN2Uz/YmQ4MTIxNmRlY2Yz/MzA2ZC5wbmc.webp","thumbnail_width":300,"thumbnail_height":300}