Real Estate PE Technical Interview Question - Case Study
Recently I was invited to an interview where I was asked on the spot to build a real estate financial model with the following assumptions:
NOI of 1 million Purchase at a 7% cap rate Expense margin of 45% Revenue Growth Yr 1: 7% Yr 2: 6% Yr 3+ 3% Expense Growth: Yr 1: 5% Yr 2+ 3% Acquisition closing costs 3% $750,000 of capex, funded at closing Leverage: 75% of purchase price (not including closing cost or capex) Financing: 4% interest rate 30 yr amortization Sale in year 5 at 7.25% cap rate on forward year NOI Sale closing costs 2%
Show IRR, profit, and equity multiple IRR and equity multiple sensitivity tables - Sensitize exit year (3-6) - Exit cap rate (6.25% to 8.0% in 25 basis point increments)
I was given 20 minutes to complete. Anyone want to take a crack at it?
Missing a bunch of bells and whistles and, like mentioned above, the formatting is trash but was able to put it together in ~18 minutes
Honest question - at what point in your career did you find yourself able to model out anything that was thrown your way?
18 months of 12 hour days.
Got about the same as investREanalyst but our Net Proceeds are different. Took me longer than 20min because I tried getting cute w/ including IRR and multiple in same data table and it took me way too long. I am stubborn.
Also, I would recommend using blue fonts for hard code, black for formulas, and green for reference to other tabs (amort table). more of a traditional PE way to do things.
https://drive.google.com/file/d/1JrpOQ8aGed6knP_-SqJqqjEEUJxAAO_B/view?…</a">20Min REPE Test
I cleaned up my above screenshot a bit for visual purposes, but didn't mess w/ any formulas. For the most part bare bone formulas. Open to any criticism.
Not dumb at all. You know NOI is $1M, and that Expenses is 45% of Rev. So I set NOI=Rev-Exp, and Exp=Rev*0.45. Then I used Goal Seek to find Rev
By the way - In the screenshot J8 is NOI and J4 is Rev