This is a bit early but still curious, I'm looking to make the transition out of brokerage roles to lender/fund side. What are the differences in modeling required?
I am used to making a 10 year DCF with equity hurdles and JV splits npv, irr, COC, MOIC, analyst,how would a lender look at the debt return? Is it debt yield, dscr do they do 10-yr dcf's?
How would a debt/mezz fund bifurcate cash flows? what if they lend on the entire capital stack? I know typical debt(sr. secured) balance sheet lenders only look at 2-yr past and maybe 1 yr-current proforma with exit feasibility analysis. What would the dashboard for debt look like on an excel model?
Thank you very much for your responses.
Biggest change imo would be ur assumptions on the lending/debt fund side vs broker side. Conduit shops just use a direct cap approach for all asset classes vs. debt funds particularly looking at sub-debt will use an equity like approach with 10-Year DCFs.
In institutional world, the modeling isn't really different - most, if not all lenders will prepare a 10 year DCF for every asset. DSCR tends to be the main metric for balance sheet lenders, DY tends to be the main metric for conduit lenders.
You bifurcate cash flow using a payment waterfall. In most loan documents waterfalls are written to be paid in this order: impounds > debt service > reserves > OpEx > rest to borrower. However, when underwriting a loan, most lenders will calculate NOI and then NCF after DS and Reserves. So they switch around the payment waterfall a little, but in the end it shouldn't really matter because you won't get the loan if all of the pieces don't get comfortably paid before the equity sees a penny anyways.
For one thing, lenders aren't going to underwrite the bullshit income/expenses some brokers do :P but IRR/NPV/COC all that stuff, they don't really care about. They'll run an in-place, take a look at your pro forma, run an UW (market vacancy, knock down tenants to market rent, UW rent escalations for credit tenants, min. of 3/4% management fee, look at the roll profile and determine a proper TI/LC and CapEx reserve and upfront reserve structure, etc...). On the analyst side you'd be making sure each number in a rent roll, income statement, lease agreement, etc... makes sense (Hey what was their net effective rent? oh 15% of their stated rent, yeah let's haircut that). The guy above you will check your work (basically that seems to be all they do) and the guy above him will look for 'the story' the qualitative side of the real estate, which i find more interesting than the numbers, and run the deal.