High level metrics to look for to see if a deal pencils

Let's say we were looking at a resi or industrial deal as a MD/Director. What sort of things or metrics would you look out for (besides cap rate/stabilized RoC) to quickly gauge if it was a good deal or not?

6 Comments
 

pencils down/Decline Analysis a lev fin Term Loan B deal standpoint:

  • Pricing/Return (pencils down until pricing hits L+500 / 6.5% for example)
  • Deal Size ($200)
  • No Rating (NR/NR), Low Rating (B-/B3)
  • High Leverage (Banks 4.0x, or institutional investors "depends")
  • Structure - don't play in _____ (2nd lien)

then more Company/Industry specific stuff

  • Sector - don't understand it, not gonna start now, or just got killed on a recent company in this industry
  • Company history - poor
  • Or specific credit concerns after deep diving (Customer concentration, contracts coming up for renewal in top 5/10, other combined risks)
 
Most Helpful

It depends if it's a development deal or not. Development: yield on cost, cost basis per SF and per unit, project/LP IRR and whole dollar nominal profit expectations are generally most important. For operating assets it really depends on the investor and what their objectives are. It could be any combination of basis, IRR, cash-on-cash, equity multiple...really just depends.

 
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