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Based on previous WSO threads, real estate debt models at large institutions like banks can be quite complex. They typically include:
For specific examples, you might find useful insights in the following threads: - Real Estate Debt Modelling: Discusses expectations for debt modeling tests and whether they focus on debt or equity. - Debt Fund Modeling / Argus: Explores the level of detail in underwriting and modeling at a mortgage REIT, including the use of Argus and adjustments to broker/sponsor assumptions. - Debt Fund Modeling in REPE?: Seeks templates and examples for LP-GP waterfall models in the context of commercial loans.
If you need actual case studies or templates, some users on WSO have accumulated these over the years and might be open to sharing or swapping them. You can find more details in the thread titled Real Estate Modeling Test Examples.
Sources: Real Estate Debt Modelling, Run Me Through This Real Estate Model, Real Estate Modeling Test Examples, Debt Fund Modeling in REPE?, Debt Fund Modeling / Argus
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Same here, just heard of debt modelling, may I have a glance as well please?
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I am interested in this as well, were you able to turn anything up?
If you're talking big banks, the underwriting and models are going to be very simple. Think "in place" NOI. They may run a few scenarios such as, what is the NOI if X tenant doesn't renew?
But from my experience the banks don't run 10 year cash flows, don't run IRR, and don't run equity multiples etc.
Construction lending will be a bit more intense in the modelling as you will have to calculate interest reserve so have to do a monthly cash flow probably.
But overall, lending underwrting is way more simple than equity underwriting.
Somewhat true, the best debt funds/lenders will run pretty in depth analysis on these deals. A lot of people have problem loans and don't want to make the same mistake twice. I have seen debt models be just as detailed and even more detailed than some equity ones. Given this is on your class "A" institutional product.
I am not surprised, I think it really varies a lot between lenders and types of lenders. Your comment is interesting as haven't worked on the lender side in like 6 years.
Well said. The only caveat I would add is that opportunistic debt shops that do pref, structured equity, etc. likely go as deep as the "Class A" institutional guys. Lending further down the stack generally requires more granularity, because of having less last dollar basis protection compared to the senior lender.
Disagree with this propmetrica.com, unless we are strictly talking about bank lending. Currently working for a platform that started as an LP/co-GP equity shop, and has since opened a debt fund. Having worked on both sides of the biz, debt gets as complicated as equity (if not more-so) when you start adding in levers like PIK options, participating structures, etc.
He literally said "If you're talking big banks"..., which is true, a big bank is not focused on a detailed underwrite of the 5-year (or whatever the loan term is) cash flows for an asset. They'll primarily focus on the stabilized untrended base case, the debt yield, DSCR, the loan basis, and the downside case. A bank doesn't underwrite the scenario of operating an asset.
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