I'm trying to learn how to model mezz and pref. Does anyone have suggestions where I can find a template model to learn how to do so? Didn't see anything solid on ACRE
Just looking for a simple model that shows how to do pref and mezz. Doesn’t need to be fancy at all. Just want to learn the mechanics. Obviously there are nuances, but want to get a feel for the basics.
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Bake the interest into the deal. Similar to an interest reserve for the senior loan.
Assuming that’s for dev. What about on stabilized / value add?
It's the same approach - you just have it as a line item deducted from cash flow below your senior loan's debt service and it reduces project level returns.
Pref equity is arguably a little more flexible in terms of at what level it should hit returns than mezz given it is equity and not debt. Some companies model it at the JV/investor level with no impact on gross deal-level returns, while others model it the same as mezz and carry it as a part of the property cash flow.
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