Every distressed commercial real estate deal starts with a problem property that a seller is willing to offer on terms or below market price.
You just need to know what pain looks like on paper.
Commercial real estate sellers or brokers seldom share the level of distress a property has because they believe it compromises the ability to get top dollar.  But they don’t need to. The signs are baked into the numbers—if you know where to look.

Let’s break down how to spot distress during underwriting, and the subtle clues that reveal when a seller’s timeline an/or tolerance is running out.

Step 1: Read Between the Rents
Distress often hides in the rent roll.
Red Flags to Watch:
• ✅ Below-market rents with long lease terms — this might mean the seller never raised rates out of fear of turnover.
• ⚠️ Large gaps or a concentration of new leases — long vacancies, month-to-month tenants, or a bunch of new leases signed recently and signed dates that are close together, signal turnover trouble.
• Too much economic vacancy — if collected rent is far below physical occupancy, dig deeper.
Investor Tip: Compare rent roll vs. T12 income. A healthy property shouldn’t have big gaps unless there’s a strategy (like lease-up). Most banks also will not fund or underwrite your deal unless there is a minimum of 8-10% economic vacancy.

Step 2: Audit the T12 Like a Detective
The trailing 12-month (T12) statement tells you more than just NOI (Net Operating Income). It tells you what the owner isn’t saying.
Look for:
• 💸 Spiking expenses in repairs, plumbing, or HVAC — could indicate deferred maintenance i.e. hvac, plumbing, roof replacement, finally catching up.
• 🤔 Missing CapEx — no Capital Expenditure or repairs for 3+ years? Bring trades specialists for commercial real estate to your due diligence walk through to confirm.
• Inconsistent income months — wild swings could mean turnover, non-payment, or major concessions.
Quick Probe: “Can you walk me through the dips in [Month] and [Month]? Was that a one-time issue or ongoing?”

📊 Step 3: Reveal the True NOI 
Some sellers “dress up” the NOI to get better offers.
How they do it:
• ✂️ Cutting back on essential or maintenance type services like landscaping, security, or pest control.
• 📉 Not including professional management—because they self-manage and expect you to do the same.
• 💼 Using pro forma income instead of actuals.
Hack: Ask for a version of the T12 with actual trailing expenses + a realistic rent roll based on current occupancy.

💥 Step 4: Look at the Loan… Then Look Closer
If you know the loan, you know the pressure.
Signs of financial strain:
• ⏳ Loan maturity within 12 months
• 🔁 Refi attempts that fell through
• Cash-out refi history without reinvestment into the asset
• 📑 Mezz debt or bridge loans from private lenders—these often signal desperation, not strategy.
Ask directly: “Is there an existing payoff quote available?” (You’ll learn volumes by how they answer.)

Step 5: Profile the Owner, Not Just the Property
Sometimes the numbers are fine. But the owner? They’re done.
Clues from conversation or observation:
• “We’ve owned it forever.” = Tired landlords

• “It’s just not worth the headache anymore.” = Management fatigue.
• “I don’t want to deal with another tenant complaint.” = Mental exit already in progress.
• Aging ownership groups
• No succession plan
• Multiple properties being listed at once
Investor Edge: Dig into public records to see if they’ve sold others recently. That usually signals a broader shift.

Step 6: Compare the property’s metrics to others in the area:
• Cap rate too low? → Inflated asking price.
• Cap rate too high? → Hidden issues.
• Vacancy way above comps? → Operational or market distress.
Use broker whispers wisely. If you hear “they need to move quick” or “make a creative offer”—you’ve likely got a motivated seller in play.

TL;DR: Numbers Don’t Lie—But Sellers Might Bend the Truth…a little!
Here’s your cheat sheet to spot hidden distress during underwriting:
• Rent roll gaps = tenant trouble
• T12 swings = inconsistent income
• Deferred CapEx = avoided major costs
• Management changes = operator fatigue
• Comps don’t match = valuation games

Want to win more off-market deals?
Get obsessed with looking for patterns and submitting offers. Distress has a fingerprint. And the earlier you catch it, the better your terms (and returns) will be.

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DISCLAIMER: This is not real estate, legal, or financial advice. Please contact your preferred attorney or financial adviser for help specific to your needs or issue.