Trying to understand the concept a bit more, as I have limited refi modeling experience.
For example, let's say you buy a property at $100m and lever up 50% floating I/O. After 5 years, you plan to refi your $50m outstanding balance through a fixed/amortizing loan. I can see this being modeled the following way:
Figure out your property value at year 6 and what LTV you could get based on the market. Construct a yield curve to determine what interest rates will be at that time. Your refi6 would still be $50m, but your payments going forward would reflect the new loan. Additionally, if your property value has increased you'd most likely have access to tax deferred cash proceeds which would be tacked onto your cash flow in that year.
1) Is the above method reflective of what you all do when underwriting a refi?
2) What method do you use when projecting your property value at refi time? Direct cap based on NOI?
3) It's possible that property values could fall by refi time, which would result in an out of pocket payment or a decision to delay your refi or not refi at all. Do you take that into account when underwriting, or is that something that is done when it's closer to refi time / ?
4) Am I understanding refi proceeds correctly?