PBSA Development Model

RE

Associate 3 in RE - Other

Anonymous

9mo

Legend ! Thank you very much !

Just a couple of questions if you have time:

1. Income: what assumption do you take for the churn/turnover? Do you assume that it's fully let at the start of every academic year?

2. Leverage: In the case of a development with forward funding, what is the typical structure of the loan?

Many thanks.

Best regards.

RE

Analyst 2 in RE - Res

Anonymous

9mo

No problem. The replies below are based on my personal experience (I work for a developer with a focus on PBSA - European market).

As per the first question: usually PBSAs are fully leased before the beginning of the academic year. You may want to model

A structural vacancy/bad debt (very low, I'd say no more than 3%-5% of the total "academic year" income)
A reduced occupancy level for the first year of operations (the value really depends on the asset, I'd assume that in the first year you lease 60% of the beds)
I don't think you need to model a churn. Assume you lease all the rooms for 10/11 months and then in the summer you have your 1/2 months of short stay ops

As mentioned, the "short stay" component is totally different - you're basically doing the UW of an hospitality structure

As per the fwd funding - it depends how detailed you want it to be.

Two years ago I worked on the UW of a PBSA to be sold via fwd funding (at the end we closed the deal on a more traditional co-investment). I'm a bit rusty on the topic, but if I recall correctly basically there were two cash flows in the model

Cash flow "development"

This is the cash flow of the developer. The developer buys the asset, develops it and sells it to the "next buyer/core buyer" at project completion.
You should model an unlevered cash flow with the development (acquisition - capex - structure costs etc etc).
The "unlevered" equity need is provided by the next buyer on a [ 3 ] month bases (so every [ 3 ] months the core buyer injects capital to the CF "development"
This amount amount anticipated by the next buyer is subject to a coupon which is detracted by the final price (see later). The biggest payment occurs at project completion
The profit for the developer is given by the agreed entry price, net of site costs, development costs, structure cost and interest expenses on the FF line (mentioned in the point above)
There must be a good margin for the developer ("developer premium") - since the entry price is fixed, any cost increase impacts the developer premium
Sometimes you have a rental guarantee (12/24 months)

Cash flow "next buyer"

There's a "purchase price" line which includes the quarterly payments to the developer (see point 4). Ideally in this cash flow you don't see the development expenses
The next buyer may have a debt line that finances the acquisition (i.e. the payments to the developer). Wouldn't be surprised to see full equity deals in this environment

Hope it's clear :)

RE

Associate 3 in RE - Other

Anonymous

9mo

Very helpful indeed ! Thank you very much ! I would throw 10 bananas if I could ! Sorry don't want to be a pain but do you know where I could find some basic assumptions to try and model from scratch to get some training? Thanks a million 🙏

RE

Analyst 2 in RE - Res

Anonymous

9mo

It really depends on the market and on the asset. See below some assumptions based on my experience

Academic year: look at comparables for PBSAs in the submarket. Add 3%-5% structural vacancy/bad debt
Summer income: look at mid quality hotels in the submarket
Ancillary income: 5/10% on the academic year GOI
Opex: 30/40% on the total GOI
PM Fee: 3%/5% on operating income

RE

Associate 3 in RE - Other

Anonymous

9mo

Thank you ever so much !!!

BMCM

King Kong

RE

9mo

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