Sensitizing Exit Value on Preferred Equity Loan
Looking at an preferred equity opportunity with current pay of 9% and all-in of 14.5%. I've put together a waterfall model for the investment. However, now I have to assess what the returns, specifically, the all-in if exit value (property) were to decrease by 10%. What's the best way to go about this?
Is this for a case study?
Regardless, you’d probably want to include a cell that has the amount you’d be haircutting the exit value by. Then, in the cell where you have the exit value formula, you’d want to modify the formula so that you’re multiplying by (1 - cell where you have the haircut%). Finally, you can create a sensitivity with that.
This is standpoint of a common equity holder. I'm trying to look at it from a lenders perspective.
By decreasing the exit value by 10%… questions like this make me realize how fucking dumb most people are. Gives me hope.
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How would it not get you the all in return. Just have the cash flows calc’d out for the pref piece.
Does it make sense to determine the residual loan balance. Exit value - senior - pref. Assuming there is a residual. Adjust your pref piece (end value) by the residual and that should result in your all-in return?
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