I'm working through a model and have to make an assumption for an appropriate amount of debt service reserves for a fully leased class A office building in a major market. Does anyone have insight on what a good assumption would be?
| +48 | Being asked to stay behind and train my replacement | 14 | 2d | |
| +33 | Best CRE brokerage firms | 24 | 56m | |
| +31 | New Comp Database - Google Form (Now with Data Validation) | 20 | 12s | |
| +30 | What does REPE actually do? | 12 | 2h | |
| +24 | Public Homebuilders | 9 | 3h | |
| +22 | REPE/Development GPA | 15 | 18h | |
| +22 | Starting University LP Fund | 5 | 15h | |
| +17 | What would your strategy be? | 14 | 4d | |
| +17 | MSRE/MSRED with no RE experience; Naive to think I’ll land a job afterwards? | 4 | 2d | |
| +16 | UC Berkeley MRED vs Columbia MSRED? | 2 | 4d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
A few questions to first consider:
Given those two variables, lenders would expect a borrower to begin to sweep cash a certain number of months in advance to have appropriate reserves to tenant any space that was recently vacated.
Other than that, if you're asking from a cash management perspective, "what is the appropriate amount of debt service reserves for a fully-leased building?" I would answer 1-2 months maximum.
Just calculate your interest reserve as a function of not having the operating cash flow to pay off interest each month entirely. We typically will offset using NOI before stabilization to reduce the amount we have to capitalize. All lenders view this differently—I.e. how to you guarantee you hit the NOI projections you think you will, and finish the capitalize portion of the project within budget vs leasing up slower, running out of money and having a capital call down the road...
Minima eos in rerum cum tempora culpa. Nihil et dicta vitae cupiditate et aut officia.
Itaque cumque saepe enim odit non perferendis quis. Molestiae nisi ut corporis. Et expedita odio et.
Ipsa animi perspiciatis eum fugiat quo. Quam et id voluptatibus exercitationem repellat assumenda voluptatibus iusto. Iusto provident ipsum dolorem. Repudiandae est omnis vel qui adipisci.
Voluptas ut et sunt architecto et animi. Maxime ut magnam veritatis neque. Aut asperiores consequatur incidunt est autem a aut molestiae. Ipsum fugiat fugit dicta mollitia.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...