Where do you guys go for modeling help? Lets say the boss wants you to model out a double promote look back and its difficult and you're not getting it. Are their online resources like a helpful forum that IB analysts turn to when they come across such issues?
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unfortunately you're usually using a template or someone else's old model. try googling. you should be able to work your way around it by coming up with a function or an if/then statement that gets you what you want.
I'm guessing by double promote you just mean two hurdles? If so, you can use min and max functions or npv function. There's free examples of both on the internet. BIWS does a great job for RE modeling, as well.
No, if you are modeling a multiple tiered promote structure ie. a 9 pref with a 70/30 to a 12 pref and then a 60/40 to a 15% return and then a 50/50 thereafter you need to model three different preferred returns. And you have a formula at the end (hard to explain over a forum) Say you had $20mm of promotes over your original 9 pref and $10mm cleared your 12 pref and 5mm cleared your final 15 pref. You would have 50% of the $5mm plus 40% of the 10mm plus 30% of the 10mm.
By double promote, do you mean (a) fund LP investors' diminished returns from a JV equity deal in which the fund invests as an LP or (b) a two-tiered waterfall? Generally, when people use the term "double promote," they are referring to (a).
Generally, local operators/developers ("sponsors") structure JVs with LP investors such that, after the LP achieves specified returns (usually based on an IRR and/or equity multiple), the sponsor will receive a higher % of the remaining profit (the "promote"), which exceeds the sponsor's % of equity invested in the deal. Clearly, this lowers returns to the deal's LP investors. Similarly, fund managers are the sponsors of their funds, and they promote off of the LP investors in the fund (after those investors achieve specified returns).
In a double promote scenario, a fund invests LP equity in a local operator's deal. If the deal performs well and returns exceed the hurdle rate, the local operator will take a promote, thus lowering the net cash flow to the fund. If this reduced cash flow to the fund exceeds the fund's hurdle rate with its investors, the fund manager will take a promote. At the end of the day, the investors in the fund will have significantly lower returns from the deal because of the double promote, in which both the sponsor of the deal and the manager of the fund receive incentive fees (promote $) that are paid out of the pro rata share of the deal's profit that the investors would have received without the promote.
The easiest way to model a double promote structure is to build two waterfalls and set the gross cash flow that flows into the top line of the second waterfall to a specified pro rata share of the LP net cash flow from the first waterfall.
I don't think he is looking at it like that, i think he is asking about a deal with has tiered promotes.
any good RE JV templates floating around out there?
HFF is probably right, but I agree with H. Roark on the use of industry terminology. "Double promote" is best used to describe the effect on fund LPs when the fund pays a promote to an operating partner, and then the LP has to pay a promote to the fund GP. Agree that this generally requires modeling two waterfalls, especially since the Operator/Fund promote will most likely have the scaling IRR hurdles described by HFF, whereas the LP/GP promote will most likely have a pref plus catch up.
PS--Roark, I am a fan of the name.
Welcome back re-ib-ny. You are one of the best contributors to the real estate forum & give some great advice.
Thanks a lot - glad somebody gets the reference.
And to the people looking for a JV waterfall template, you can actually find a few pretty decent models running this google search:
real estate jv equity model filetype:xls
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