Hi guys, long time lurker and first time poster here who needs the help of the WSO community.
I've got a second round interview coming up with a small REPE (value added) shop coming up that is going to consist of a investment modelling in excel test, along with a short report pitch to the company's institutional investor.
Browsing of the net seems to bear no fruit apart from the common "know your functions" statement.
I'm not too shabby with excel but don't want any suprises flustering me so I'm here to ask what am I to expect?
I had an excel test for RE, studied some models from link below. There is a practice test on there which was similar to my test but the solution set is $99.
https://www.getrefm.com/free-tools-from-real-estate-financial-modeling-…
it depends entirely on what you're modeling. But, if it's value-add then most certainly you will model the acuisition price, the capex for renovation and the ultimate reversion. Basically it's the forward method of the cash flow statement in a IS/BS/CF model. Most important parts to consider are fees, closing costs for both buying and selling, and then of course what the cap structure looks like..how you are financing this buyout will ultimately drive IRR. I doubt you'll have to do PE Sponsor/JV waterfalls as those are very complicated, but you will have to know how to build ana mortization table, captialize interest expense during reno, and then perhaps refi out the senior loan once you are generating stbale cash flow if you want to maximize IRR.
Just got the second interview confirmed today yay.
I'm working through an recruiter so this is a little snip of what he sent me today;
"The next stage will be the completion of a basic cashflow forecast and IRR calculation on excel. You should allow 1 to 1.5 hours to complete this, in their offices. After that the guys will ask you to prepare a presentation on their findings and present it to them. The cashflow model will be based on a small office portfolio."
This is an entry level position @socola2003 do you think I would still need to consider all of the above? Most of it I've covered already in the last couple of days but some things like capex for renovation, the ultimate reversion, build an amortization table and captialize interest expense during reno is something that I would be unfamiliar with in this scenario, I'll have to look more into.
Office portfolio is fairly simple...you will have to forecast rent roll and TI (capex). If you will use leverage (debt), which I would assume you have to unless they want an asset IRR, then you will need to build an amortization table since IRR is calculated from basically all dividends to the equity and then ultimately the return of equity following reversion. Remember whatever cap rate you use, you must use the forward NOI, so if you sell in year 5, your NOI used is year 6.
BTW the recruiter is retarded there is no portfolio modelling in REPE it's always at the single asset level so you will likley be modelling just 1 office building..i've never seen the case where under 1 LLC you have more than 1 RE asset for a # of reasons and this is market...
This can get a bit hairy to model out the cash flows, you should look at the getREFM office model as an example and study that diligently if you want to be best prepared..last thing you want to do is get stuck in a model during the test.
GL
Quick comment here. There can be portfolio modeling in REPE as a single LLC can own multiple assets, we have done this multiple times. Did they mention Argus modeling at all?
It's a big help that they gave you the asset type. Understand what standard cap rates and PSF values are in the markets where they invest, and how they change with vacancy, low rents, stabilized rents etc. This will help serve as a backboard for your valuation and strategy.
Example Class B office in a weaker market could be around $225 PSF if stabilized, translating to roughly a 7.0% cap on stabilized NOI Assuming the buildings are 50% leased, what pricing makes sense to assume that lease up risk... For example a 150 bps spread would get you to a 8.5% on stabilized NOI, or $185 PSF in this example
^situation changes for Class A office in a major market
I would be impressed if someone forecasted the cash flow, IRR, and was able to do some downside scenarios. For example, what happens to the IRR if you have - unforeseen capital expense (2 million in year 3) - interest rates rise on the debt - lease up time for vacant spaces double - cap rates inflate and instead of selling at a 7.25% in year 4, it becomes an 8.0 exit cap
Hey OP, how did your interview go? I had mine today and believed we might be talking about the same place
Cheers for the input guys, didn't go too bad but still waiting for feedback.
I was required to build a model on a portfolio of city/suburb commercial properties. Most assumptions were pretty basic except for one that threw me off, there were lease breaks (lease is broke on 'X' date, assume suburban properties stay vacant for 'Y' amount of time, new tenants are put back in at 'Y' rate psf) on some of the properties in the assumptions and due to time constraints I didn't get around to being able to factor them into the model. Thinking back on it now I could of easily built something simple but it just didn't come to me in the test and I didn't want to allocate to much time towards working on it either and take away the quality from the rest of the model.
klimaz308 I interviewed on the 25th and was told I was the only one interviewing that day. Are you based in Dublin?
So I got to the next stage of the interview. I have been sent back the excel spreadsheet with the model to rework it and display it to the company in a short presentation.
They have asked me to prepare a SWOT analysis presentation of the portfolio and my findings. It is up to me what I want to include in it but I've been asked to keep the presentation short and snappy, 4-5 slides max. I'm familiar with SWOT analysis in corporate investment appraisal, but not real estate, what should I be focusing on heavily?
If I started adding assumptions to build a more complicated model do people think they would be more impressed or just think I'm a bit of a try-hard?
@capital360 - Just sent you a PM.
good luck man
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