How do I do a watefall model for only the sale proceeds, while the operating cash flows are always pro rata?
How do I build a model in which the the operating cash flows are distributed pro rata between LP and GP, but the sale proceeds are distributed based on certain IRR hurdles. I only know how to do a waterfall model for overall levered cash flow, but I don't know how to separate out only the sale price.
Has anyone seen a deal like this before?
Thanks for any help
Exactly how you just described, just separate them out...
I don't know how to do that. I only know how to distribute the overall cash flow based on hurdles. I am pretty new at this. How would I separate them?
Have a line for CF to equity from ops then have a line for net sale proceeds, distribute accordingly. I really don't know how to make it more simple than this.
If conceptually this is a struggle for you though, you might need to take a few steps backwards you just may be ahead of yourself. Might want to take a better look at constructing rent rolls, income statements, creating proformas, and all the mechanics of cap rates and discount rates so that you fully understand how you get from top line revenue all the way down to equity cash flow and where the actually building valuation and sales price are coming from. Once you understand all of that I think you would see why people are confused on why you would ask this because you literally answered your own question in the question itself...just separate them out.
No offense but have you tried spending 15 seconds thinking about this?
To be honest I am only just learning how to do waterfall models using Spencer Burton's videos. I don't understand the mechanics well enough to fiddle around too much with the model he did. Although if I saw a model with how it worked for sale proceeds onlyI would understand it. Just trying to learn
Look at how Spencer uses the AND() function to determine when certain capital events occur. Use this function to determine how/when the levered cash flow is distributed.
He does not use the AND function anywhere in the waterfall model of his that I am looking at. Can you elaborate on what you mean?
I'm not saying he uses the AND() function in his waterfall, but I know he uses it when timing certain events. For example, off the top of my head, I know he uses it when calculating development costs. I'm not sure which model of his you're looking at, so I can't reference exact sections.
You can use AND()*FOLLOWING_FORMULA in your model to dictate when the cash flows appear in either the waterfall or the pro rata section.
Agreed with the above that this should be simple, but I remember when I was just learning waterfalls and could see how you could get confused. This is what I would do:
I'm not always the best at explaining, so hopefully that makes sense. I would spend a little more time on understanding waterfalls as this is a pretty simple. The most helpful tip I can give for modeling waterfalls is to break out every calculation (cash flow, refi proceeds, sales proceeds, cash flow applied to preferred return, capital event proceeds applied to preferred return, cash flow used to reduce capital, etc) to make the easier. That way when you have different cash flow events applied differently you can more easily alter the calculations to correspond with the waterfall terms.
I think I'm starting to approach something that makes sense. I was able to get the first hurdle done but I have to do the rest of it. Could I send you what I have so far, and you can tell me if this is what you had in mind?
Accusantium id dolor repellendus a qui. Qui enim quae consectetur. Nulla reiciendis rerum eum corrupti tenetur.
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...