A Note About The Limitations of Microsoft Excel in Modeling Real Estate

I think its important to point out that my All-in-One (Ai1) Underwriting Model for Real Estate Development and Acquisition is not a surefire replacement for your non-Excel valuation/underwriting solutions. In fact, it’s likely you (or your employer) chose to use another tool in large part because of the limitations of Excel. And Excel certainly has its limitations!

An Example of its Limitations

Take for example modeling expense reimbursement. It would be virtually impossible to model in Excel (or in any other tool for that matter) the almost infinite variations of expense reimbursement arrangements in retail, office, and industrial leases. Other solutions likewise come up short in this area, but come a lot closer than any Excel model ever could.

So in this Excel-based All-in-One Underwriting Tool, I use an annual expense recovery by tenant method to calculate expense reimbursement rather than attempting to model every possible scenario. Less precise? Sure. Good enough? In my experience, the buy/sell decision/outcome does not hinge on what the exact amount of reimbursement income a property might throwoff is – a figure, by the way, no software can predict with 100% certainty.

Note on Limitations in the ORI Module

While the All-in-One is meant to handle more complex lease scenarios and therefore can do a lot of the things that people turn to non-Excel solutions for, it still has Excel-specific limitations that it’s important to be aware of.

First, the ORI module does not support reimbursement of management fees. The complexity of handling the circular nature of reimbursing management fees outweighs the benefit. As a workaround, we’ve included an Admin Fee that when modeled as approximately the same amount as the management fee gets you to approximately the same outcome.

Second, the ORI module is limited to three generations of leases. This is to avoid exceeding Excel’s memory capacity. Given that the max analysis period in the All-in-One is 10 years, and most long-term leases are 3+ years long with downtime between leases, this limitation shouldn’t affect most people. But if your scenario includes leases shorter than three years, you’ll likely need to use a different solution or shorten your analysis period.

Finally, the lease reimbursement module in the All-in-One has limitations. While NNN and Gross leases generally model well, when you get into gross modified/base year type leases, the reimbursement amounts are more approximations than an accurate forecast of the reimbursements. This again is due to the limitations of Excel. If you need an exact forecast of future reimbursement cash flows, you’ll need to use a non-Excel solution.


So, it really comes down to this. Excel is inexpensive, widely used, and offers customization on the fly but lacks the super-precision of its non-Excel counterparts. It’s up to you to perform your own cost-benefit analysis to decide which tool best suits your purpose.

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About the Author: Born and raised in the Northwest United States, Spencer Burton has over 20 years of residential and commercial real estate experience. Over his career, he has underwritten $30+ billion of commercial real estate at some of the largest institutional real estate firms in the world. He is currently President and member of the founding team at Stablewood. Spencer holds a BS in International Affairs from Florida State University and a Masters in Real Estate Finance from Cornell University.