IRR for Long Term Hold Assets
Question on calculating IRR..
I’ve been rather new to a family office who have Ben around for awhile. Some of our assets we have owned for 20-25 years and we do not even have any models so I am in the process of building ones out. How would I calculate returns? Basically what I am struggling is, what is my going in Capital Event? Would I use our current appraised value? I can’t do a 20 year prior cash flow..
I assume you are saying you can't do a 20 year prior cash flow because your firm does not have the data from the original acquisition? Or the cash flows over the last 20 years? If the asset has been held over that time, they need to have that info somewhere. Understand it might be tougher for a family office, but I do not know of any way to calculate an IRR of a project without including the cap event.
Don't know if it would be helpful, but I work on 20 year concessions similar to RE in the broadband PE space. I build 20 year models w/ debt (3 tranches), equity, and grants w/ options to refi at any point (CF+, rev targets, etc.) as well as sales at any year / promote structure. Happy to share and walk through it with you if you're interested. PM me.
I have going back like 5 or so years of cash flows.
Would there be any other metrics I I can calculate if not IRR? Just trying to have some sort of return metrics.
I guess an equity multiple is worthless too since you don't know the purchase price or debt/equity.
Maybe comps by property type / location / square footage. I am not really that familiar with the RE side of things. That is only for valuation, not a rate of return.
I am sorry; I don't think I have any more insight. Maybe someone else can help.
hey mate super old thread but i would love to take a look at your model!
Annual cash on cash would probably be the most relevant return metric you are looking for. IRR really can only be calculated if you have data for how much cash has flown in and out of the project for the entire hold period.
This, also if they have been holding onto these things for 20+ years, your IRR is going to converge to your CoC anyways (unless these things are in the Bay Area and 4xed in value).
How is this impossible to find? Do you have an accounting department? Someone has to have the records on file for distributions made.
For new deals underwrite to a 10-year hold. This is what the major pensions / hold in perpetuity core funds do in my experience. IRR becomes irrelevant after 10 yrs.
+1sb to guy above who said CoC.is the target metric. That is spot on. New long term funds (oaktree comes to mind) target CoC VS IRR hurdles.
Assuming you can’t get the previous cash flow, run a proforma 10 year cash flow and determine the NPV. Use this as your purchase price. Layer in debt. And now you have your projected leveraged IRR. Now decide with this projected IRR, do you want to hold or sell the asset.
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