Debt Fund Modeling in REPE?
I'm trying to study for some technical/case study exams for REPE debt fund recruiting, but I've found that finding reliable information on the modeling aspects/any templates is rather difficult. Basically, I'm trying to find any kind of LP-GP waterfall model template that demonstrates how key metrics are calculated for a given commercial loan and how the cash flows are treated differently than a standard equity side waterfall model. I hope I'm putting this into the right words. Any help would be greatly appreciated.
I believe Property Metrics has some stuff, this is easy to find with Google
The property metrics one is helpful for an equity deal and understanding the basics, but I'm really looking for any kind of waterfall template that is specific to a commercial loan. Ater multiple hours of searching, I'm yet to find one. Any additional insight would be appreciated.
Lenders don’t look at GP and LP splits. It has no effect on them. They underwrite to NOI and solve for DSCR, Debt yield and LTV
Bump
High level return modeling for debt fund is really easy and shouldnt be confused with equity modeling:
-> You need to know what your loan economics are - i.e. coupon, origination fee, exit fee, rate step ups, etc -> Lay these out in an excel sheet in the same way you would lay out the NOI/NCF/CFADS for an equity model - i.e. time 0 = - invested equity + origination fee, time 1 = annual coupon ...., time x = repayment of loan + exit fees -> Use the XIRR function to come up with an 'unlevered' yield, the same way you would for an equity model, except here that you are simply using the loan economics as your returns. -> Coming up with levered cash flows - to make things simple lets just imagine the debt fund using a warehouse facility (a loan on loan or a note on note) - again the same way an equity investor uses leverage via a loan -> Use the XIRR function to come up with a 'levered' yield - again the same way an equity investor would except here using 'levered' loan economics.
Property level cash flows and underwriting are absolutely important - but mores o for understanding the actual feasibility of the deal and structuring a deal (do you need debt service reserves? Is the exit value contemplated by the sponsor reasonable?)
If i missed anything, feel free to add on.
This is really helpful for loan analysis but I'm really looking for a model where I can input the gross cash flow of a loan in its entirety, the asset management fee, and the hurdles of the waterfall structure and return metrics such as the investor IRR and EM along with the sponsor IRR and EM.
To me it really sounds like you are confusing what a debt fund really does/how they think about returns. Unless ur looking for a debt fund LP model - again thats just gonna be a simple equity projection. I feel ur confusing the two and for a debt fund UW interview, you will likely be asked to project the cash flow, and come up with an unlevered and levered IRR.
I doubt anyone will ask for a 'waterfall' - again that is more fund level modeling and is more of a relevant concept for equity acquisitions than for a debt fund.
Yeah I am pretty confused...this was helpful, thanks!
what does a debt fund do? is it underwriting loans secured by the real estate? what's the difference between mortgage investments vs mortgage underwriting at a REPE firm?
Most shops do a lot of sensitivity analyses and modeling out the timing of business plan execution as it has a huge impact on the debt fund's IRR. In terms of portfolio modeling, we have a small team that models the fund's cash flow and leverage , and also leverage used for each loan (syndication the senior note or asset specific financing or using one of the credit lines, and when it makes sense to issue CLOs, etc.).
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