Trended Rents Are the Optimism Buried in Every Development Pro Forma

Trended rents are the single assumption that does the most work to make a development pro forma pencil, and the assumption that gets the least scrutiny. Trended rents are today's market rents pushed forward by a projected annual growth rate to the year a project stabilizes. That growth rate, compounded over a two to three year build, is not a fact. It is a forecast dressed as one, and it flows straight into the yield on cost that the deal is judged on. The thesis is simple: the gap between the trended yield and the untrended yield is a measure of how much of the return is being borrowed from a future that has not happened yet.

Adventures in CRE defines trended rents as "rental rate figures which are based upon some market growth projection," in contrast to untrended rents, "which assume no growth in annual rents." That single distinction moves more deals off the pass pile than any other line in the model.

Key Takeaways

• Trended rents grow today's rents by a projected rate to the stabilization year. Untrended rents hold today's rents flat. The trended figure always produces a higher yield on cost, because it divides a larger, projected NOI by the same fixed cost.

• CBRE's long-range outlook projects U.S. multifamily rent growth averaging roughly 3.1 percent per year over the next five years. A pro forma that assumes 4 or 5 percent is not conservative, it is a bet above the consensus forecast.

• The difference between trended and untrended yield on cost is the optimism gap. In the worked example below, a 3 percent rent growth assumption over three years lifts yield on cost from 6.00 percent to 6.56 percent, a 56-basis-point gap created entirely by projection.

• Rent growth is compensation for time and risk that has not been earned yet. Cost is spent in today's dollars, so trending only the revenue side while holding cost flat overstates the true build-side return.

• The untrended yield is the honest screen. If a deal only clears its hurdle on trended rents, it is a deal that requires the market to cooperate for two to three years before it works.

What are trended rents in a development pro forma?

Trended rents are today's achievable market rents grown forward by an assumed annual rate to the year a project reaches stabilization. A pro forma applies that rate, compounded, to build the revenue line at lease-up. Untrended rents skip the growth and hold current rents flat, producing a more conservative and more defensible view of stabilized income.

The mechanics are compounding. Adventures in CRE illustrates the method with a hypothetical 200-unit Austin property at a $1,200 average rent and a 3 percent assumed growth rate: year one trends to $1,236, and year five trends to roughly $1,393, calculated as $1,200 multiplied by 1.03 to the fifth power. Nothing about that math is wrong. The exposure is in the input. The growth rate is chosen by the underwriter, and a rate that looks modest on a single line compounds into a large swing in stabilized NOI. See the trended yield and yield on cost glossary entries for the definitions this article builds on.

How do trended rents inflate the yield on cost?

Trended rents inflate yield on cost by raising the numerator while the denominator stays fixed. Yield on cost is stabilized NOI divided by total project cost. Cost is spent in today's dollars and locked. When trended rents lift projected NOI but cost does not move, the ratio rises. Every basis point of that lift comes from assumed rent growth, not from anything built.

Work an example. A project carries $100 million of total cost. At today's untrended rents it produces $6.0 million of stabilized NOI, an untrended yield on cost of 6.00 percent. The build and lease-up take three years. Apply a 3 percent annual rent growth assumption, in line with CBRE's roughly 3.1 percent five-year forward outlook, and trend the NOI: $6.0 million multiplied by 1.03 to the third power equals $6.56 million. Arithmetic check: 1.03 cubed is 1.0927, and 6.0 times 1.0927 is 6.556. Divide by the same $100 million cost and the trended yield on cost is 6.56 percent.

The optimism gap is 56 basis points of yield and 56 basis points of spread. On the untrended view, the deal builds to a 75-basis-point spread over a 5.25 percent exit cap, thin by most sector standards. On the trended view, the same deal appears to clear 131 basis points and reads as a comfortable pass. Same dirt, same budget, same building. The only thing that changed is a growth assumption the market has not yet delivered. For the full spread mechanics, see yield on cost vs market cap rate.

One correction belongs in the example. Expenses trend too. If costs grow faster than rents, as they often do in inflationary stretches, trended NOI is lower than the revenue-only trend implies. A pro forma that trends revenue at 3 percent while holding expenses flat is not optimistic, it is internally inconsistent.

What rent growth assumption should a pro forma use?

The rent growth assumption should be anchored to a named forecast, not to the number that makes the deal work. CBRE's long-range outlook projects U.S. multifamily rent growth averaging roughly 3.1 percent annually over the next five years. A pro forma assuming meaningfully more than that is underwriting above consensus and should say so out loud, with the reason.

The reason this matters is that the assumption drives the answer more than any other input on the revenue side. Hold cost at $100 million and untrended NOI at $6.0 million, vary only the growth rate over the three-year build, and the trended yield on cost swings across a wide band.

Nearly a full point of yield separates the flat case from the 5 percent case, and every basis point of the difference is an assumption. CBRE reported that in Q1 2026 the average U.S. apartment rent rose just 0.2 percent year over year to $2,217, a reminder that recent delivered growth has run well below the long-run average during a heavy supply cycle. An underwriter who plugs 5 percent into a three-year trend is not describing the market in front of them. They are describing the market they need. Related reading: pro forma assumptions buyers should challenge.

Why is untrended yield the more honest screen?

Untrended yield is the more honest screen because it isolates what the project earns on today's rents, before any assumed growth. It answers a cleaner question: if the market does nothing for the next three years, does this deal still clear its hurdle? A deal that passes untrended has a margin of safety. A deal that only passes trended is renting its return from a forecast.

Untrended yield is not a claim that rents will never rise. Nearly every multifamily market shows some rent growth over a full cycle, so the untrended view deliberately understates likely income. That is the point. It is a stress test, not a prediction. When a development underwrites to a 6.00 percent untrended yield against a 5.25 percent exit cap, the 75-basis-point untrended spread is the cushion that has to absorb cost overruns, a slow lease-up, and cap rate expansion during construction, before any rent growth arrives as upside rather than as the thing holding the deal together.

Here is the line worth keeping on the whiteboard: trended rents are not a forecast, they are a hope with a spreadsheet formula attached. Treat the trended yield as the optimistic case and the untrended yield as the base case, and the optimism gap between them becomes a quantified measure of how much the deal depends on the future. Screen on the untrended number first. Let trended rents tell you how much better the deal gets if the market cooperates, not whether it works at all.

Frequently Asked Questions

What is the difference between trended and untrended rents?

Trended rents grow today's market rents forward by an assumed annual rate to the year a project stabilizes, using historical market data as a guide. Untrended rents hold current rents flat and assume no growth. Trended rents always produce a higher projected NOI and a higher yield on cost.

Why do trended rents make a development pro forma look better?

Trended rents raise projected stabilized NOI while total project cost, spent in today's dollars, stays fixed. Because yield on cost divides NOI by cost, a larger trended NOI over the same cost produces a higher yield. The entire lift comes from assumed rent growth, not from anything built into the asset.

What rent growth rate is reasonable in a pro forma?

Anchor the rate to a named forecast. CBRE projects U.S. multifamily rent growth averaging roughly 3.1 percent per year over the next five years. Assumptions materially above that are bets above consensus and should be justified explicitly, especially given that Q1 2026 apartment rents rose only 0.2 percent year over year.

Should I screen deals on trended or untrended yield?

Screen first on the untrended yield, which tests whether the deal works on today's rents with no growth. Use the trended yield as the upside case. If a development only clears its hurdle on trended rents, the return depends on the market cooperating for two to three years before the deal works.

Conclusion

Trended rents are the optimism buried in every development pro forma, and the optimism gap between the trended and untrended yield is a number, not a feeling. The trended yield borrows from a rent forecast that may or may not arrive; the untrended yield reports what the project earns on the rents that exist today. A developer who screens on the untrended number sees the margin of safety before committing capital, then treats rent growth as the bonus it is. A developer who screens on the trended number has already spent a return the market has not paid.