Dear Fellow Monkeys,
I'm evaluating an office acquisition deal and trying to get an understanding if this fits industry standards. The family office I work for is far from sophisticated. The property is a multi-tenant office building with 88% in place occupancy and we're in GP. Assuming market and leasing assumptions are reasonable, unlevered IRR is about 7.75%. The capital stack for a 10-year hold is as follows:
- 70% funded by senior bank loan (3 months I/O, amortized over 30 years)
- 18% funded by mezz loan with accelerated amort over the first 3 years, then amort over the rest 7 years with equity kicker (its proportionate share of 75% profit split in the last tier of waterfall)
- 2% funded by GP and 10% funded by LP
Waterfall:
- 8% return CoC to LP and GP contributed capital; any excess cash after 8% cash on cash will be used to pay down mezz principal in the first 3 years
- Then keep returning cash till 10% IRR hurdle
- Thereafter, 75/25 profit Split where 75% goes pro rata to LP, GP, and Mezz and 25% goes to GP
Thoughts?
