Interest Offset / NOI as Source

Developers out there, do you always use positive NOI prior to lender coverage being met to offset interest carry in your models? What about if you’re pre-coverage and can not only cover interest for the month but a portion of TI/LC’s as well? Do you model this income as a Source?

Lenders, do you give the sponsor credit for NOI offsetting interest carry each month or view it as non-guaranteed income and thus size your interest reserve based on 0 income dollars going against interest carry pre-coverage ratio?

 
Most Helpful

Yes, it's standard for the offset from a Developer/Investor modeling perspective. I think it's important to point it out to everyone involved because a lot of times it gets glossed over.

I had a bank construction lender allow 50% of the total NOI projected during that offset period apply for sizing the upfront interest reserve.

Other larger institutions that are investors and lenders have allowed 100% but the equity sponsorship was rock solid and so there wasn't any concern about someone not having the money to finish, something that a small bank and small local developer might have to worry about.

 

it depends on the lender, that interim NOI is not guaranteed as the asset isn't stabilized yet, so you should ideally build in a toggle when you run the book for raising the construction loan, some lenders will allow for it and others wont give credit for interim NOI during lease-up to stabilization. This is how I always do it.

 

Yeah we just closed a '$500MM condo/mf/retail syndicate and the sr lender and the b note sub lender both rejected the interim cash flows to be conservative, and so we had to fund increased equity. The way we built the model is that we still recognize the cash flows, it just sweeps the debt so essentially the debt draws and is repaid in the same month...

 

Qui ipsam totam neque eum dolorum velit. Labore praesentium praesentium voluptatem quia dolores qui illo. Incidunt ipsum facere eaque doloremque voluptas.

Rerum quae sed distinctio alias iure dolorem. Architecto similique nihil itaque officia est voluptatem eius. Et autem labore beatae est soluta ut eius. Quos quos possimus modi nulla.

Distinctio qui repellendus sint reprehenderit. Maiores consequatur quidem mollitia numquam. Aliquid vel odit nam quibusdam dolorem. Natus quod illo nesciunt laboriosam nihil pariatur corporis. Eos eaque neque autem est animi.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
dosk17's picture
dosk17
98.9
6
DrApeman's picture
DrApeman
98.9
7
kanon's picture
kanon
98.9
8
CompBanker's picture
CompBanker
98.9
9
GameTheory's picture
GameTheory
98.9
10
Jamoldo's picture
Jamoldo
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”