I was wondering how detailed is everyone's modeling of a proforma with a floating interest rate. Is it estimation, interpolation, or do you just use the base rate throughout the proforma?
I figured that one would have to look at the yield curve and model that plus the base rate to get the all in rate for 3-year floating rate construction. Is there anyone that underwrites it to more than 1st year DSCR and 1st year all in rate, I mean we have to assume at the end of year 3 that you are paying more in interest since rates will be higher?
A lot of floating rate lenders require the borrower to purchase an interest rate cap. So you model year 1 and then max interest.
If you aren't required to purchase the interest rate cap, then most likely there is some sort of yearly DY test or DSCR test (trailing 12) and if you trip the trigger, something happens (cash flow sweeps, LOC requirements, or pay downs).
This is simple. You pull a forward curve from Bloomberg, or request one from a Brokerage firm. Take the spread + monthly benchmark = current interest rate. Model that going forward.
REAcquisitionsNYC method is probably more accurate. Both my current and the previous shop I worked at started with the base rate then included an annual escalation amount usually 50 bps although sometimes we'd use 25 bps. If we had a cap/floor this would obviously be account for. We will typically compare this to a fixed rate loan although I think this method is flawed since at 50 bps a year you've probably escalated well more than reality.
To account for rate floors/caps, just throw some min and max functions... all set.
Thanks for all the help everyone. Is there a certain(standard) site that everyone hyperlinks the rate to?
If you have Bloomberg, the excel plug-in can pull the data, if not just paste values.
The link below is to an example of a recent deal we just did. It is pretty identical to what REAcquisitionsnyc suggested.
http://imgur.com/xlMqmg6
awesome, thank you!
Floating Rate Bridge Loan Model with Earnout? (Originally Posted: 10/21/2014)
Does anyone have a floating rate bridge loan model they'd be willing to share? Specifically, I'm trying to understand how an earnout component corresponding to a renovation/PIP might get modeled. Any thoughts are much appreciated!
capex included in the unlev CF lender provides $ for capital spent -> cfads balance goes up as capital provided interest goes off running balance
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