NAV Calcs for REPE Companies

Used to be in fund/portfolio management for a middle-market REPE shop focused primarily on development.  This is how we handled things:

You start with gross asset value (GAV) for each property in the portfolio, then adjust for any other items that impact value (i.e. lease-up / cost to complete discounts for dev assets - see more on this below). You'll then adjust for balance sheet items (cash on hand/working capital, mortgage & other outstanding liabilities, etc), which finally lands you at each individual asset's "gross" NAV.  You'll then multiply by the fund's sharing ratio/pro rata share - with adjustment for any waterfall structure - to arrive at your final deal-level NAV.  This is what gets rolled up into fund NAV.  You're essentially doing a hypothetical liquidation calculation as of the quarter end date. 

The nuanced part for development-heavy funds is the timeline/calculation of profit recognition, and every fund will have different policies for this.  At my fund, for instance, anything with less than 10% of hard costs complete is simply held at cost (i.e. fund's equity basis to date).  Once it hits the 10% hard cost threshold, an "as if stabilized" appraisal is commissioned and you go through the high-level process outlined above. 

On your specific questions, my experience has been: 

1) Almost always quarterly, but 3rd-party appraisals are only commissioned 1-2x per year to derive gross asset values.  Interim quarters gross values are at the discretion of the fund, but you've got to have rationale for any movement as the auditors will ask to see backup.

Sometimes there will be disagreements with the 3rd-party appraisers, as they are inherently backwards-facing in their analytics.  During post-COVID runup from late 2020 on, for example, appraisers were still comping to 2019-2020 trades and cap rates.  Their rents generally lagged the market and many times they'd simply use in-place without any credence to last 30/60/90 days leasing (which in some cases had moved 8%+ during that span)

2) To get more granular into the the development side of things, you start with total projected deal-level profit (appraised "as if stabilized" GAV less total budgeted cost) - again assuming you've hit some sort of % of cost complete threshold. From there you calculate development profit and lease-up profit earned to date. We used a 70/30 split for this but I'm sure others use something different.  Development profit recognized in any given quarter will be calculated by % of total cost incurred to date.  Lease-up profit is the same thing, just with calculation via occupancy as of quarter-end date (have seen others do net leased). We also keep a 10% profit holdback to be on the conservative side of things. 

Again, the exact methodology will vary from fund to fund, but hope the above gives you a general outline.