I got a case study from a potential employer that looks like it was transcribed by someone who doesn't understand CRE (its verbatim, below). I'm trying to model it out and was hoping someone could give me a gut check on my math.
My back of the envelope model (attached) suggests ~$18 million purchase price to generate 20% IRR
"Here is the example project:
- Hypothetical 100 unit building. They are all one bedroom apartments in the
Columbia Heights neighborhood. It is a Class C building being converted into
Class B. (2300 monthly)
- Cost of renovation is $25,000 per unit to revamp the property
- Hold period is 5 year
- Give us a 5 year IRR including the cost of renovation
- Use neighborhood rent comparables to identify 1 bedroom rent for your
underwriting model.
- Use a 6.5% Cap rate Going IN.
- 1 year renovation period and 1 year absorption period (time it takes to get the
tenants in the building).
- What would you pay for this building?"
| Attachment | Size |
|---|---|
| model_0.xlsx 10.09 KB | 10.09 KB |
So many missing pieces tbh, kind of a red flag if they can't give you all the assumptions for a typical multi case study.
Below is what I would expect from your typical multifamily case study. It might show initiative if you pull some of the assumptions from the example below and ask for clarification from the interviewers.
An opportunity exists to acquire a hypothetical 478-unit multifamily property in suburban Maryland. The property was built in 1999 and is fully stabilized. Build a dynamic real estate acquisition, operation, disposition, and financing model to evaluate the opportunity. Please provide an annual cash flow summary formatted to print.
General Assumptions:
Acquisition Date: 4/1/2015
Purchase Price: $110,000,000
Stabilized Occupancy: 95%
Rental Rate: See T-12 Financials Provided
Revenue Growth: 4% annually
Operating Expenses: See T-12 Financials Provided
o Management Fee = 2.5% of Total Income
o Tax's Reassessed at Purchase: $1,600,000 Year 1, 3% growth thereafter o Replacements: $350/unit per year
Expense Growth: 2.5% annually
CapEx - $600/unit per year
Hold Period: 10 Years
Exit Cap Rate: 6.25%
Sales Costs: 2.75%
Senior Mortgage
65% Loan to Cost
Origination Fee: 45 bps
Interest Rate: 3.5%, Fixed
Amortization: 30 Years
Please provide a summary that includes the following metrics:
Unlevered IRR
Unlevered IRR Sensitivity Table (analyst choice of most relevant variables)
Unlevered Return on Cost
Levered IRR
Yeah thanks.... I've never had something so generic to work with. Think I'm going to go ahead and just do a full model out of an apartment acquisition and hope that will suffice.
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