Real estate models
I was wondering fellow CRE members, I know that we get some flack from fellow financiers for our models. What are some more complex real estate models?
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Why do you want it to be complex?
so he can compare schmeckle sizes with his IB friends
No one likes complexity.
If you want to seem "smart", just slap on a Monte Carlo for your lease renewal assumptions or just model the entire deal in python. People will think you're a rocket scientist.
Simple is better. We're not splitting the atom over here.
Spend more time increasing the solidity of your most important assumptions (like construction cost for example) and less time trying to make unnecessarily complex models.
Tell them to have fun watching their livelihood automated away over the next 10-20 years, then tell them to pound sand. Anyone who relishes in increasing life's complexity deserves to be trolled into eternity.
Try modeling or explaining a multi-tier waterfall cash flow distribution scheme with look-back IRR based hurdles. That will go toe to toe with most LBO or other complex deal structure models the I-bankers do (like in the M&A shops).
The fact that it is generally easier to estimate rents on a building or set of buildings for multiple years than estimating sales of toothpaste from 12 countries year by year is not our fault!
To some extend everyone is who said you don't need complex...they are wrong.
There are two camps to complex, the entire 1-2 page of inputs that is a black box and those with a dashboard and annual return rollup below. I've seen models so complex that I could not edit easily, in that case what is the point. But, if you can make a complex model with separate budgeting, draw, waterfall, monthly, yearly rollup, financing tab that all rollup to one summary page with cash inflows and outflows, yeah that makes a complex model look really simple.
I'VE seen simple models not include any lease-up period, I've seen models be off 2 million dollars in capitalized interest cost. I've seen simple models have an ltv sizing when the project ended up being dscr constrained.
To @MokeyWrench, do you really think the analyst position is going to be automated? I don't, that is where you grow and teach future VPs and MDs about the business. It is not like a position that exists for 10-30 years, you generally move up from analysis to management and if you did not spend your time in the analyst period you wouldnt really knwo what you are doing.
Having worked in both banking and REPE, I honestly think the RE models I'm working on now are more complex...
I don't have your experience in IB, but I would agree from what I've seen
How so? Could you please explain?
less is more. GIGO. make sure assumptions and inputs are solid. that’s the most important.
complexity probably leads to more BS models. no need in RE. JUST GET DEALS DONE.
don't mistake complexity for accuracy. You can be coplex but not transparent,
Do you have any tips for auditing RE model?
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