The headline number in this campaign is a big one: a pro forma target of $2,400 per unit, or $4,800 per month, compared with a current listed rent of $2,781. That is an indicated difference of roughly $2,019 per month. It is a compelling figure, and it deserves a careful, step-by-step explanation rather than a leap of faith.
What "pro forma" means
A pro forma is a projection of how a property could perform under a defined set of assumptions. It is not a promise, and it is only as reliable as the assumptions behind it. A good pro forma shows its inputs openly, so that you can change them and see how the results move.
Step 1: Test the rent target against the market
The first question is simple: what do comparable units actually rent for? Gather current listings and recent leases for 2-bedroom, 1-bath units within a short distance, paying attention to condition, amenities, and parking. Divide the results into three groups: dated units, lightly updated units, and fully renovated units. Then see where a renovated Grace Ave unit would sit.
If $2,400 is within the range of updated comparables, the target is plausible. If it sits above them, adjust it down. Being conservative here protects you later.
Step 2: Understand the legal framework
California has statewide rules that limit annual rent increases for many existing tenancies, and some properties are exempt based on age, type, or owner occupancy. Vacant units that are newly leased are generally treated differently from units with an ongoing tenancy, but the details matter. Because the Grace Ave units are currently vacant, the first lease can be priced to the market, subject to applicable law. Always confirm the specific rules for your situation with a qualified California attorney before building a plan around them.
Step 3: Define the improvement scope
Rent growth usually requires a reason. Renters pay more for homes that look and feel better. A focused scope might include:
- Interior paint and lighting updates
- Durable flooring where needed
- Refreshed kitchen and bath surfaces and hardware
- Curb appeal improvements
We will cover each of these in detail over the next several posts.
Step 4: Build the budget and timeline
Add up the cost of each improvement, include a contingency, and estimate how long the work will take. Then calculate the carrying costs during the work. A pro forma that ignores the cost of getting there is incomplete.
Step 5: Model the returns
Compare the extra annual income to the money you invest. Here is a simple, illustrative frame: if the improvements add a certain amount of monthly rent, multiply by 12 for the annual increase and divide by the improvement cost. That ratio is your return on the improvement spend. Real analysis should also include vacancy, higher operating costs that scale with rent, and the effect on property taxes and insurance.
Step 6: Stress test
Ask what happens if the achieved rent is 5 or 10 percent lower than the target. What if the work takes two months longer? What if the first lease takes an extra month to sign? A deal that still works under a few reasonable setbacks is more resilient.
A note on NOI
The pro forma NOI target in the offering materials is $57,600, which equals $4,800 times 12. As with the baseline, that figure appears to represent annualized rent rather than a net figure after expenses. A buyer should therefore build a net estimate that subtracts vacancy, taxes, insurance, maintenance, and any other costs.
The bottom line
The upside case for 309 & 311 Grace Ave is real enough to explore seriously, but it should be tested, not assumed. The pro forma projections lay out the assumptions in one place so that you can adjust them with your own research.
Next step: Download Full Pro Forma Projections.
Projections are estimates and are not guaranteed. This article is informational and is not financial, tax, or legal advice. Consult qualified professionals about rent regulations and your specific plan.