REIT Modeling Test
Here is a modeling test for Equity Residential REIT, they give 90 minutes to complete.
REIT interviews are similar to REPE ones- you are asked about cap rates, NOI's, thoughts on current trends, etc.
Salary is way lower, 75k with 10% bonus quoted in Chicago.
ANALYST CANDIDATE EXCEL EVALUATION
An opportunity exists to acquire a hypothetical 478-unit multifamily property in suburban Maryland. The property was built in 1999 and is fully stabilized. Build a dynamic real estate acquisition, operation, disposition, and financing model to evaluate the opportunity. Please provide an annual cash flow summary formatted to print.
General Assumptions:
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● Acquisition Date: 4/1/2015
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● Purchase Price: $110,000,000
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● Stabilized Occupancy: 95%
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● Rental Rate: See T-12 Financials Provided
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● Revenue Growth: 4% annually
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● Operating Expenses: See T-12 Financials Provided
o Management Fee = 2.5% of Total Income
o Tax's Reassessed at Purchase: $1,600,000 Year 1, 3% growth thereafter o Replacements: $350/unit per year
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● Expense Growth: 2.5% annually
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● CapEx - $600/unit per year
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● Hold Period: 10 Years
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● Exit Cap Rate: 6.25%
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● Sales Costs: 2.75%
Senior Mortgage
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● 65% Loan to Cost
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● Origination Fee: 45 bps
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● Interest Rate: 3.5%, Fixed
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● Amortization: 30 Years
Please provide a summary that includes the following metrics:
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● Unlevered IRR
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● Unlevered IRR Sensitivity Table (analyst choice of most relevant variables)
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● Unlevered Return on Cost
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● Levered IRR
Question for those of you out there that are prepping for tests like this (thank goodness that's not me): do you feel that 90 minutes is sufficient time to fully express your modeling skills or would you prefer a longer time frame?
Speaking from my personal experience, but I think 90 mins is only enough to build a model and metrics, but not enough time for in depth valuation on the overall deal.
However, I'm also trying to break into REPE so it could just be lack of practice on my end. Curious how other monkeys think about this.
Thank you, OP, for sharing the test!
Thanks for the feedback. I administer this type of test when we hire analysts (we give ~24 hours) so it's always good to hear feedback on what peoples expectations are.
For a test this simple I think it's (barely) enough time to get an idea of somebody's modeling skills and whether they can digest information fast enough to quickly form a high level opinion.
I get why companies (particularly IS brokerages and high deal flow REPE shops) run this type of time crunch test, because they have to quickly look at so many deals, but considering people coming into these interviews are already highly stressed I also find it a little bit silly. You're not going to see someone's best from these.
Personally, I think a 24-48 hour take home test is a far better indicator of somebody's actual skill set and the way they think. Have them build a model and a pitch deck in that time, then present at the next interview. It lets you see that within a reasonable amount of time they can get the numbers right, and gives the candidate an opportunity to really showcase how they think about a deal and their selling ability. You can also test more complex modeling skills with a longer time limit.
That's been my experience. We give people 24 hours to complete our test (about the same as this one) as I feel it removes the stress factor. I personally don't care much on their ability to think about the deal for this part of their interview, we treat the test as more of a pass/fail, purely mechanical exercise. I'm more focused on how well the model is built (can I change assumptions and will it flow through dynamically, are there random hard codes hidden in formulas, etc.) than whether they considered "adding laundry income" or something that wasn't included in the test or something like that. I'm sure that's more a function of my shop though vs. others that may have different priorities.
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Interesting to hear that 60-90 minutes would be sufficient here. Maybe we're looking at bad candidates, but I'd expect most models to come back partially unfinished with that time period (either not as dynamic as they should be, amortization schedule for debt not built out, etc.). I get enough bad models as it is with a 24 hour period. Your 2-3 hour mark is what I would expect to give a candidate for them to get to a finished product.
I share the concerns about the take home tests, but haven't run into an issue yet (though I do run into an issue with people using pre-built models that have been repurposed, which is always pretty obvious generally).
Thanks so much for sharing this model. Will try to work on it soon!
Hey thanks a lot for sending this! SB'd. Do you have the T12 that they refer to and if so, could you attach that? Thanks in advance.
Where is the T-12 info? I don't know what to put for gross potential rent.
Do you have the completed model? I’m interested to see what it looks like
Are Taxes Reasssed at Purchase considered to be treated as an expense above the NOI calculation, similar to property taxes? If anyone could share a completed version of the case study, it would be greatly appreciated.
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