How to Read an OM
An offering memorandum, or OM, is the marketing document brokers create to sell commercial properties. It bundles financials, market data, photos, and rent rolls into a polished package designed to attract serious buyers. Across Macomb County, learning to read an OM critically is one of the highest leverage skills a commercial investor can build, because the OM is marketing first and documentation second. The gap between the pitch and the underlying reality is often where good deals get separated from expensive mistakes.
Start with the executive summary, which lives on the first one or two pages. It includes price, asking cap rate, square footage, occupancy, and the broker’s headline pitch. These numbers are not made up, but they typically represent the most optimistic interpretation of the data. A 9 percent advertised cap rate on an older Warren industrial building might be calculated on pro forma market rents rather than what tenants actually pay today. A 95 percent occupancy figure might include a tenant on a month to month lease about to leave. Treat the summary as a hypothesis to test rather than a fact to accept.
The rent roll deserves careful attention. Look at tenant names, suite sizes, lease start and end dates, monthly rent, and escalation clauses. Calculate weighted average lease term across the rent roll. A Macomb County multi tenant industrial flex with 65 percent of income rolling over inside 24 months is much riskier than the same building with a weighted average lease term of seven years. The rent roll tells the real story about income stability that the executive summary glosses over.
Financial sections typically include a trailing 12 month operating statement alongside a pro forma projection. The trailing 12 reflects actual recent performance. The pro forma reflects what the seller thinks the property can do under different conditions. Reasonable pro formas include modest rent growth and slight expense increases. Aggressive pro formas assume rent jumps that would require lease up at well above market rates, vacancy magically disappearing, and expenses staying flat. Smart investors anchor on the trailing 12 and treat pro forma as upside, not baseline.
Expense lines deserve scrutiny. Property management should appear at 3 to 5 percent of gross rent. Capital reserves should be present, typically $0.25 to $1 per square foot annually. Property taxes should reflect what the buyer will pay after Michigan’s taxable value uncaps at sale, not what the seller is currently paying under a long held capped basis. An OM using the seller’s tax number overstates NOI meaningfully, often by 15 to 25 percent on industrial property in Macomb County that has been held for decades.
Photos and location maps are designed to highlight strengths and minimize weaknesses. Drone photography taken at golden hour makes most buildings look great. A site visit at multiple times of day reveals what photos cannot. Traffic patterns along M-59 or Van Dyke. Parking utilization. Condition of neighboring properties. Drainage issues that only show up after rain or snowmelt. The on the ground reality matters more than the marketing pictures.
The disclaimer language at the back of every OM states that the broker has not verified the information and that buyers should conduct their own due diligence. That language exists for a reason. The OM is a starting point for investigation, not a substitute for it.
TDG Commercial, known as top commercial realtors in Macomb County, helps buyers work through offering memoranda critically and rebuilds the underlying numbers using realistic local assumptions. Reading an OM well is one of the best protections against overpaying for commercial property across the region.
