Sophistication of Modeling for Investment Sales
Hi all, I am currently taking the REFM course and learning about more sophisticated modeling like incorporating waterfalls and promotes. I have a strong interest in working in investment sales and was wondering if the modeling would incorporate waterfalls or promotes? I am thinking no as it seems it would only be modeled for PE or Development but was not 100% sure.
In short, I am wondering how sophisticated IS modeling typically is and if anyone could share any examples of a model that would be awesome too!
Thanks!
Most likely wouldn't have waterfalls since that's how the guy putting the deal together would look at it.
For most of the deals I model, we typically only do a T12 and then a 1 year looking forwards, or a 10 year with IRRs and what not.
Most investors have their own way of underwriting and their own assumptions they want to put in. All investment sales underwriting is there to do is for us to figure out a value and then give a general idea of returns.
Thanks, this is helpful! Follow up question, I know an investment sales analyst has a lot of hats, not sure if you are an analyst or above that role but about how much of the job would consist of modeling opposed to writing OMs, etc.
Really depends on the role, I've got friends who are like 85% modeling, but that's all they do, then I've got friends that are like 10-20% of the time.
It will definitely be a mix, you'll be responsible for putting together a lot of the OM.
Depends on where you work, some IS brokers will help their clients model things like waterfalls, or will present hypothetical structures during deal making. But generally, they model down to the NOI level as every investors sets own use of debt, equity structure, etc.
IS modeling focuses a lot on rents, rent rolls, capex, op ex, etc. This includes forward looking leasing assumptions, turnover costs, etc. Argus tends to be used heavily on the institutional side.
Most models presented in IS brokers' OMs are Argus outputs, its way more efficient than excel and many investors, lenders, and appraisers will ask for Argus files for underwriting.
To tack on....investors/buyers want ARGUS especially if a property has base year in any of the leases. I could care less for NNN properties, and not at all for multifamily.
Good point, I would hate to have to model various base year and expense stop setups in anything other than Argus. Especially if you have a multi-tenant property where every lease has different term which is very common.
Same deal for the renewal assumptions, Argus makes it 'too easy' to see the future, but modeling would be a pain in excel with probability weighting for renewal assumptions, doable, but would take hours for what takes seconds in Argus.
i also feel like brokers use Argus because it is a black box. Imagine finding an error in excel, the broker would be discredited.
I only modeled property level returns as an IS analyst. Never needed to touch anything partnership level since those will vary depending on the buyers and are just beyond the scope of whats needed for an OM/BOV.
To touch on some of your follow up questions: -In my experience, the IS analyst job consists of probably 50% modeling and 50% various research/marketing/admin duties like editing slides, writing market highlights, tracking CAs / facilitating the virtual deal room, helping with property tours, etc. -typically larger/institutional clients won't care as much about your underwriting and do it all themselves using their in-house analysts, whereas smaller groups might work off of your model.
Nothing worse than the "we've sent some of your assumptions off to be vetted by research"...
You won't be putting many together, but you will need to know your way around one. The first thing i do when i receive bids and their accompanying models is ship it to my analyst to look for any irregularities. Speaking directly to someones model separates the smart IS dudes from the dumb.
Eventually you'll really need to know your way around them, but the best place to learn is on the job. Should you do some equity placement, you'll need it on the front end.
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