Over the years, I’ve seen countless real estate deals come across my desk, many of them packaged with pitch decks that are sharp, professional, and full of promise. The IRRs are sky-high. The story feels bulletproof.  The asset class is ‘hot’.  And the proforma always seems to point to a big win.

But here’s the truth: most of the time, the difference between a good deal and a bad one isn’t in the deck, it’s in the assumptions.

A spreadsheet can tell you anything you want to hear if you ask it the right way. The real test of a sponsor isn’t how the deal looks on paper but whether they’ve historically been right in their underwriting.

The Illusion of the Pro Forma

In today’s market, it’s easier than ever to build a “great-looking” model:

• Inflate rent growth expectations

• Compress the lease-up period

• Ignore potential delays, overruns, or tenant churn

• Cut reserves or expense assumptions to juice cash flow

Anyone can present a 20% IRR by pushing the right variables around. But that’s not a strategy, that’s a sales pitch.

What Smart Passive Investors Should Actually Be Looking For

If you’re evaluating a deal as a passive investor, here’s what really matters:

1. Track Record
   Ask for actual results, not just marketing slides. What were the projected returns on previous deals, and what actually happened? Can the sponsor walk you through where they were accurate and where they missed?

1. Transparency of Assumptions
   A strong sponsor will share the full pro forma, including the detailed assumptions behind every number: rent growth, operating expenses, vacancy expectations, lease-up timing, and exit cap rate.

1. Stress Testing
   Ask to see a downside case. What happens if rents stay flat? If interest rates rise? If construction takes longer than expected? Quality sponsors model this because they know things rarely go exactly to plan.

1. Aligned Incentives
   How are fees structured? Are there preferred returns and catch-up provisions? The structure should reward the sponsor for performance, not just for putting the deal together.

1. Communication and Reporting
   Once the deal is live, how often will you get updates? Are the updates comprehensive? Will they share financials? Will they explain variances from the pro forma clearly and directly? Or will you get silence when things go sideways?

Common Red Flags

These are signs you should dig deeper or walk away entirely:

• The IRR looks too good to be true (and no downside case is offered)

• The sponsor can’t show any historical performance

• Assumptions are vague or generalized with no backup

• Heavy use of financial engineering (preferred equity, mezz debt, or hidden developer fees) without clear disclosure

• No sponsor equity in the deal

If the deal relies entirely on perfect execution to hit its targets, it’s not a deal, it’s a gamble.

Our Approach

At NorthBridge, we typically underwrite deals with a 5-year hold period. That doesn’t mean we’re locked into that timeline.  Market conditions may present an earlier or later exit, but it gives us a realistic framework to model rent growth, expenses, lease-up, and return expectations.

We underwrite conservatively, build in contingency, and test how our numbers hold up in less-than-ideal scenarios. When we bring a deal to investors, we share the model, not just the highlight reel. And once the deal is live, we deliver regular quarterly reporting, including variances and explanations.

If we miss, we say so. If we beat our pro forma, we explain how. It’s about treating underwriting as a discipline, not a sales tool.

Final Thought

If you’re a passive investor evaluating a real estate opportunity, don’t let the marketing flash distract you. Focus on the fundamentals. The quality of a sponsor’s underwriting, the honesty in their assumptions, and their ability to perform over time will matter far more than what the IRR says on page three of the pitch deck.

Ask the tough questions. Demand the details. And partner with sponsors who view your capital the same way they view their own: with caution, respect, and accountability.

In the dynamic world of commercial real estate, staying ahead means anticipating changes before they unfold. While location, design, and tenant demand often dominate discussions, a less obvious but critical factor shapes the industry: the bond market. As of June 24, 2025, U.S. Treasury yields are sending signals that savvy developers cannot ignore. Here’s why monitoring this financial compass is essential for success in today’s market.

Borrowing Costs: The Foundation of Financing

U.S. Treasury yields, particularly the 10-Year Treasury, serve as a benchmark for interest rates across the economy. When yields rise, borrowing costs for construction loans, bridge financing, or refinancing climb, directly impacting project budgets. For instance, a 1% increase in rates on a $50 million mixed-use development could add millions in interest over the loan term. Conversely, falling yields reduce borrowing costs, creating opportunities to secure favorable financing.

As of June 24, 2025, the 10-Year Treasury yield stands at 4.35%, down from a high of 4.48% in mid-April (TradingEconomics). This decline reflects market expectations of two Federal Reserve rate cuts by the end of 2025, potentially in September and December (CNBC). For developers, this suggests borrowing costs may ease further, making it a strategic time to lock in financing or refinance existing debt. By closely tracking yield movements, developers can save significantly on large-scale projects.

Capital Flows: Where Investors Place Their Bets

Bond yields influence not only borrowing but also investor behavior. At 4.35%, Treasury yields are relatively attractive but lower than earlier in 2025, prompting some investors to seek higher returns in real estate (MarketWatch). This shift can increase demand for commercial properties, particularly in high-return sectors like industrial warehouses or logistics hubs.

However, if yields rise, institutional investors may favor the safety of bonds, reducing capital for speculative or long-term real estate projects. Developers who monitor these trends can adapt by targeting alternative funding sources, such as private equity, or focusing on markets with strong fundamentals. Misreading the bond market could lead to stalled deals or over-leveraged portfolios, making it a critical gauge of investor sentiment.

Inflation’s Ripple Effect

Bond yields also signal inflation expectations, which directly affect construction costs. Higher yields often indicate rising inflation, driving up prices for materials like steel or lumber and labor costs. Earlier in 2025, as inflation concerns grew, developers saw concrete prices spike by 10-15%. Forward-thinking firms use bond market trends to anticipate these cost increases, opting for strategies like modular construction, securing bulk material deals early, or adjusting lease terms to offset costs. Ignoring these signals risks budget overruns mid-project.

Tenants Feel the Impact

The bond market’s influence extends to tenants. Higher borrowing costs, driven by rising yields, can strain business budgets, limiting their ability to lease premium spaces. However, with the 10-Year Treasury yield at 4.35% and potential Fed rate cuts on the horizon, businesses may face lower borrowing costs, improving their capacity to sign leases (Fidelity). Developers who track yields can better predict tenant demand, offering flexible lease terms or targeting resilient sectors like logistics or healthcare. For example, a developer in a secondary market recently shifted from office to industrial properties after noticing yield-driven demand changes, leasing up months ahead of schedule.

A Roadmap for Success

Why are smart developers so focused on the bond market? Because it’s more than a financial metric, it’s a roadmap for navigating uncertainty. In a year where economic conditions could shift rapidly, those who interpret these signals can seize opportunities others miss: acquiring land when yields deter competitors, securing financing before rates rise, or positioning projects in high-growth markets. At NorthBridge, we’re not just building properties, we’re crafting strategies that turn market insights into real estate success.

Ready to explore how bond trends can shape your next project? Contact our team for tailored insights into today’s market. The future belongs to those who see it coming.