my firm was looking at some pref equity deals (on the LP side) for development deals. The deals would be structured as a simple pref return.
What are some back of the napkin calculation or major metrics that you would be looking for when looking at these deals?
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In addition to traditional development metrics, some pref-specific metrics you'll want to evaluate are the max accrued basis, LTC (w/ Pref), terminal debt yield (trended and untrended), and minimum multiple.
The sponsor is going to be an important factor in getting comfortable with these deals, especially the liquidity of their balance sheet.
Thanks! Very helpful.
And when you say terminal debt yield and multiple, what is the typical number we should be looking for? I think for the senior DY, its usually between 8-9%.
On the dev side, I've seen DYs (w/ pref) between 6.0-7.5%. I'm sure some shops UW lower yields depending on the risk of deal.
This can't be right. If that's the debt yield on the pref, what the hell is the developer building to?
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