In commercial real estate, what does 'underwriting' refer to?

Underwriting in commercial real estate refers to the evaluation of a property's financial performance and the associated risks. This process involves analyzing various factors, including the property's income generation potential, operating expenses, market conditions, and comparable property performance. By conducting thorough due diligence, underwriters assess the viability of an investment, helping investors make informed decisions about purchasing or financing a property.

This detailed evaluation plays a crucial role in the overall investment process, as it helps lenders and investors understand the financial health of a property and its ability to generate returns. Additionally, underwriting helps in determining the appropriate financing terms and conditions, ensuring that all potential risks are identified and mitigated effectively.