current market returns and uw standards for new developments and value add deals
What kind of returns are you currently seeing in your market for value add and development deals? What are your current underwriting assumptions and thresholds? what are the most common waterfall structures you see for MF & industrial spec? Assume a project cost in the 10-50mm range in a gateway / primary market 90/10 deal
I currently consider the following UW Assumptions:
cap rate expansion: 5-10 bps per year rent growth: 2-2.5%
Project type: MF spec development (mid rise, affordable) Term: 3 yrs hold YOC: 6-7% Trended ROC/spread: 150 bps > exit cap LIRR: 17% EM: 1.6x LTC: 65% LPs pref: 9% Waterfall: 80/20 to 13% 70/30 to 18% 65/35 thereafter
are these numbers still relevant? curious to see where the market is right now
Looks pretty typical but would try for 8% pref with 80/20% to 12% project XIRR then 70/30% thereafter... Does Sponsor earn pref too? Paid pari passu?
yes 9% pari passu
This looks exactly like my models, but not sure how you are getting a 2x on a 17 levered irr and a 3 yr hold......
my bad em is 1.6x. corrected
Deals like this are getting green lighted? 150 bpts spread with rent growth? With that logic you’re underwater if rents are flat and you owe a pref return to the LPs, no?
What sort of capital do you see funding deals like this?
This isn't uncommon at all
This probably more of the rule than the exception in today's day and age. Pretty much the only way you don't have this sort of return profile is if you are lying to yourself.
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