How to use the Sensitivity Analyses.
Six steps from base case to IC-ready downside framing. Plus practitioner tips on step-size discipline, why IRR is misleading, where cap-rate decompression drives IRR, and how to handle the downside cell honestly.
A. Six steps
- 1
Download the Sensitivity Analyses workbook
You receive an XLSX with multiple sensitivity grids: 2-variable matrices (cap rate × NOI; rate × LTC; exit year × exit cap), 1-variable swings, and a tornado-chart tab. Save as
Sensitivity_<Deal>_<YYYY-MM>.xlsx. - 2
Set the base case from your UW Workbook
Inputs: base NOI · base cap rate · base proceeds · base hold period · base equity multiple · base IRR. The base case should match exactly what the UW Workbook produces — sensitivities are deviations from base, not a separate underwrite.
- 3
Set the variable step sizes
Default steps: cap rate ±25bps, NOI ±5%, rate ±50bps, LTC ±5%, exit year ±1yr, exit cap rate ±25bps. Widen for value-add deals where variance is larger; tighten for stabilized deals where variance is smaller. The step-size cell drives every matrix.
- 4
Read the 2-variable matrices for downside framing
Cap rate × NOI matrix: rows are NOI scenarios, columns are cap rate scenarios; cells show value or IRR. The diagonal moving down-and-right is the compounding downside. Bring this into the IC memo when arguing the downside case.
- 5
Build the tornado chart for the IC presentation
The Tornado tab orders sensitivities by impact magnitude: which variable swings IRR the most? Usually exit cap rate first, then NOI, then hold period, then rate. Tornado is the most-watched chart in IC presentations — make sure the underlying step sizes are realistic.
- 6
Export the LP / IC downside framing
Save the cap-rate × NOI matrix + the tornado chart as a 2-page PDF for the IC packet. Pair with the IC Memo recommendation — the sensitivity work is the "show your work" for the recommendation paragraph.
B. Practitioner tips
- Step sizes matter more than you think. A 100bp cap-rate range looks reasonable; a 50bp range looks plausible. Don't default to 25bp without thinking about whether the deal is genuinely that tight.
- IRR is the most-watched output but the most-misleading sensitivity variable. Equity multiple is more honest because it doesn't compound through time.
- Cap-rate decompression at exit is the single biggest IRR driver in most CRE models. If your tornado doesn't put exit cap on top, double-check the step size — likely too narrow.
- Rate sensitivity matters less than people think once IO period is correctly modeled. Most CRE deals are flat-rate floating debt; the move is in spread, not in the index.
- Don't hide downside scenarios in the appendix. LPs read the downside cell first; making them hunt for it signals you don't want them to see it.
- Pair sensitivity with stress-test: cap-rate × NOI is "what if variables move" — stress-test is "what if specific bad things happen" (lease-up slip, refi-rate spike, sale-year delay). Different framings, both useful.
C. Scope & limits
- Not a stochastic / Monte Carlo model. Sensitivity is grid-based and deterministic; for probability-weighted outcomes you need a different tool.
- Not for portfolio-level sensitivities. Single-asset analysis only. Portfolio cross-correlation needs separate treatment.
- Doesn't handle non-financial sensitivities (entitlement risk, construction delay risk, sponsor-execution risk) — those need narrative treatment in the IC memo, not numerical sensitivity.
- Output is a function of input step sizes — small step sizes produce small-looking sensitivities. Always disclose the step size in the IC memo footnote.
D. Pairs with
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Data Analyst
Agent (forthcoming Q3 2026)
Builds custom sensitivity matrices on request (e.g. "show me NOI vs operating expense ratio across the 3 lender boxes").
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Credit Analyst
Agent (forthcoming Q3 2026)
Reads the sensitivity output; references the cap-rate × NOI downside in the screening memo + IC memo risk section.
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UW Workbook
Template (available now)
The base case must match the UW Workbook. Sensitivities are deviations from base, not a separate underwrite.
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Cash Flow Projection
Template (available now)
For 10-year multi-period sensitivities (exit year × exit cap × refi window), use the Cash Flow Projection tab instead — this template is for going-in sensitivity.
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Memo Drafter
Skill (forthcoming Q3 2026)
Pulls the sensitivity matrix into the IC memo's risk section automatically.
Next step
Build the full stack around it.
This template is the work surface for a specific AI agent + skill workflow. Open the Company Builder and assemble the matching agents when they ship Q3 2026.