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JV modeling question (Originally Posted: 03/03/2015)
The refm jv tutorial teaches JV modeling by taking the distributions and using "Investor Injections, Investor Accruals, Tier 1 Annual Distribution, Tier 2 Annual Distribution" lines. The cf difference between hurdles lie in the "Investor Accruals"
In my experience, there is a way of doing JV modeling using the NPV function and a FV factor. I personally prefer the FV factor method as there are less formulas. Does everyone know what I'm referring to? What method do you prefer and why?
I'd be shocked if you heard anyone from a RE AM/PE background use the phrase "investor accruals." That smacks of accounting to me.
"They are making this much"
Why would you be shocked? Are you not in RE PE, and you're just making an uneducated assumption? Accruals are the most important element of waterfall calculations.
=FV(NOMINAL(RATE,12)/12,MONTH,,NPV(NOMINAL(RATE,12)/12,CF1:CFX)+-EQUITY BASIS)
Agree, do you normally use this formula for waterfalls..trying to get the sense of who uses this compared to the "investor accruals between hurdles" method. Also trying to get sense of sophistication of this method vs. others and which shops uses which.
i only use them for lookback calc on non-condo deals (deals with a residual, where the IRR is made up almost entirely of that last CF). otherwise i use the accrual / equity balance / equity repayment method. but every shop has different jv models. interested to hear other responses as well
We only use the accrual method. The formulas I use / have seen for calculating accruals are the following:
1) Beginning Equity Balance * [ (1+hurdle rate)^(1 / # of Periods) -1 ]
2) (Beginning Equity Balance * hurdle rate) / # of Periods
If we were to take a preferred return of 12.0% compounded monthly:
Example #1 returns after:
1 month: accrual return of 0.95% 1 year: accrual return of 12.00%
Example #2 returns after:
1 month: accrual return of 1.00% 1 year: accrual return of 12.68%
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