Recently came across a few modeling case studies and was asked to calculate returns with different hold period. How would you usually go about sensitizing the hold period? Do you just project the cash flows for a longer period? What's the easiest way to get it done? Thanks.
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What kind of deal is this, acquisition or development? Would also be helpful to know what product type you’re modeling (i.e. MF, office, retail).
I believe the case study is asking you to show returns when selling at different times - 3/5/10 years. Put more contingency on your exit cap rate as you project to a later date.
If they're just asking for the sensitivity of the hold period he shouldn't adjust exit cap (unless showing a table for each hold period at various exit caps) - the point of the sensitivity would be to understand the impact of the hold period all else held the same.
Would you potentially share these case studies (if accessed for free of course)?
Set up a data table where you the returns based on different hold periods. 3 years, 4 years, 5 years, etc. Can also do a two variable table with exit cap sensitized too.
Just project out for the years required and calculate what it would be worth at exit at those various points in time based on the current financial position and cash flows to date.
Include the various exit periods across the top (ie. years 2022-2027), and then you show the walk down to value and returns: NOI, cap rate, value, less debt, plus cash, equity returns, for each period (at a very high level, but you get the point).
I think they want him to build a sensitivity table.
Which means you need to have IF statements on all of your exit values in the cash flow statement. Make it so you can change the exit date by just punching in a number on your assumptions tab, and then build a sensitivity table
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