Modeling test Wording

Hi everyone,

Training to transfer. Here a couple of questions that are going to sound dumb but literally stuck atm:

3-hour modeling test for Industrial REPE with a tenancy schedule of 3 units (some vacant, some need capex, different lease price...) freehold + but got a global asking price for all.

  1. Should I run cashflows 1 tab / 1 unit and have 1 tab gathering the 3? (They face the same line item in terms of OPEX and lease type & growth assumptions)

  2. Being Asked to build a tenancy schedule incl. WALE, Rent... Should I just build a simple table resuming all the asked metrics?

  3. Debt assumptions driving me crazy: 50% LTV Fixed 4.5% margin/year, 1% amo, 75bps exit fee.

Does that mean 50% of the asking price (125m) with a blended rate of 5.5% (4.5+1) and 75bps of the loan value in terms of exit fee (when repaid)?

I really don't get the margin / amo should I just add them and work on 5.5% interests/y?

Thank you very much in advance guys!

Real Estate Modeling Course

  • Real-life RE Modeling Tests from actual Interviews
  • Various asset classes including multi-family, commercial and more
  • Huge discount - until more tests and cases added

Comments (6)

Most Helpful
Nov 17, 2021 - 5:31am

1. Doesn't matter if you model your prelim cashflows in 1 tab or 3 tabs, but make sure everything feeds into a single cashflow tab in the end.

2. Your ten schedule should be feeding your cashflow in your model, if you input lease at a income of x per sqm until XX/YY/ZZZZ, then your cashflow should be driven from this

3. I'd suspect your LTV is driven from acquisition price. You're not blending the rates, separate line items for interest and capital repayments. Loan amount 50% x 125m = 62.5m, initial interest is 62.5 x 4.5% = 2.8m, your amo of 1% means you pay down 1% per annum of capital on the loan, so next year your loan capital will be 62.5 x 1% = 625k ---- 62.5m - 625k = 61.9m....so now you are paying interest of 4.5% and amo of 1% on 61.9m in year 2. Your exit fee is probably based off whatever the loan balance is upon exit of the investment after you carry out the previous exercise (lets assume 60.5m x 0.75%)

Nov 17, 2021 - 5:42am

A huge thanks! Perfectly clear.

2 last questions:

- Based on the ten schedule that will feed my CF. Should I run within that ten schedule all the release/renewal (base on X% retention ratio, X months of free rent if new lease, All lease are X-year terms (all given in assumptions)...) with the weighed average to get a potential gross rent and then just feed the CF?

So basically 3 projections giving me the rent during the whole life of the project and then feed the proper CF and apply OPEX, CAPEX, financing, returns...

- Among the units in the giving assumptions there is one with a break-in / Expiry at the same date (in 3 years) is that a typo or a trick I don't get (models start Jan-2022)?

Thanks again for your reply.

Nov 17, 2021 - 11:28am

I'm not quite sure what you mean but basically summarise the tenancy schedule so that these items are easy to identify for the reader. You can just run a gross rent throughout then have different line items for deductions in breaks/vacancy, rent frees etc, that's a matter of flavour though. Some people will run a gross rent as one line item and rent free deduction as a second, or some will deduct the RF in the gross cash flow so that the value for those months is nil, I prefer the former as it allows you easily identify what's going on...does that answer your question?

I wouldn't say it's a trick but part of your job will be identify these things in appraisals (I presume that's the route you are going down from your questions). Calculate a WAULT at your exit period, this will inform you (and others) on your cap rate at exit. If you want or have time for additional brownie points you could model out the different hold/re-gearing or re-leasing scenarios but probably not necessary. 

Nov 17, 2021 - 11:42am

Thanks again! 

I think i can move forward on that bit. 

It's required to calculate WALE WALB... But I don't get it about this tenant.

Unit1: Empty (assumptions are to model X months of capex before leasing) - fine then I'll Rent it following given ERV + growth 

Unit2: Tenant occupies it for 3 years (guess I need to model the lease based on the probability of new lease / renewals after 3 years)

Unit3: Empty (I guess empty because nothing is told) but a tenant is breaking-in 01/01/2024 / Expiry 01/01/2024 (This is why I've asked if it was a typo)

Based on the initial building of the ten schedule the only thing I can see atm is

U1: Empty atm
U2: Tenant here for 3y
U3: Empty atm  

So what's the point in building a WALT WAULT WALB? 

Sorry again but I'm covering a total different type of deals and it's driving a bit crazy...

Best

Nov 19, 2021 - 4:35am

Dolorem dolore minima a error laborum. Dicta hic at aut dolore. Ut voluptatem odit sit esse quis dicta recusandae beatae. Repudiandae rem eveniet aut nostrum.

Quae ut sed hic et quaerat est. Voluptate ut culpa necessitatibus earum similique quo. Vel recusandae et accusamus consequatur dolor sint quam. Inventore quo aut enim accusamus fugiat quibusdam ex.

Minus et dolorum et dolores eos. Voluptatem maiores ut rerum.

Start Discussion

Total Avg Compensation

November 2021 Investment Banking

  • Director/MD (10) $853
  • Vice President (40) $360
  • Associates (234) $234
  • 2nd Year Analyst (144) $156
  • 3rd+ Year Analyst (34) $154
  • Intern/Summer Associate (107) $146
  • 1st Year Analyst (514) $136
  • Intern/Summer Analyst (394) $84