Real Estate PE Technical Interview Question - Case Study

Recently I was invited to an interview where I was asked on the spot to build a real estate financial model with the following assumptions:

NOI of 1 million
Purchase at a 7% cap rate
Expense margin of 45%
Revenue Growth Yr 1: 7% Yr 2: 6% Yr 3+ 3%
Expense Growth: Yr 1: 5% Yr 2+ 3%
Acquisition closing costs 3%
$750,000 of capex, funded at closing
Leverage: 75% of purchase price (not including closing cost or capex)
Financing: 4% interest rate 30 yr amortization
Sale in year 5 at 7.25% cap rate on forward year NOI
Sale closing costs 2%

Show IRR, profit, and equity multiple
IRR and equity multiple sensitivity tables
- Sensitize exit year (3-6)
- Exit cap rate (6.25% to 8.0% in 25 basis point increments)

I was given 20 minutes to complete. Anyone want to take a crack at it?

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Comments (57)

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Jul 25, 2018 - 8:35pm

2nd year analyst on an I Sales team in NYC and was given a modeling test during the interview process. If you in the hunt for a RE capital markets position it's likely you'll encounter at least one test for every 3/4 interviews you go to. A lot of these teams are lean and extremely deal focused so they need to you contribute something day one. If you can't...there's another kid that can.

Aug 3, 2018 - 12:41pm

I work at primary multi family shop (buy-side). I got a basic set of assumptions a blank worksheet and needed to find the debt and equity yield in 30 minutes.

I don't have time to model out this post right now, but when I have free time I'll time myself and post an excel doc with my answer.

  • Associate 2 in CorpFin
Aug 3, 2018 - 2:09pm

sorry if stupid question but how do you get your data table to show both IRR & MOIC in same cell?

edit: nvm sorry just saw you linked to excel - thanks for this!

edit2: quick qs but why isnt closing costs picked up in the sum formula in cell K18?

Many thanks

Aug 17, 2019 - 5:56pm

If the sale is in year 5, why don't you calculate the sale price based off the YEAR 6 NOI? If you could explain this, I would really appreciate it. I interpreted this case to mean that the property was sold in year 5 and forward looking NOI would be the year following year 5.

Jul 31, 2018 - 1:50pm

Can someone please explain how they sensitized for hold periods? I can make the model so that the exit year is dynamic but when I plop it into the sensitivity w/ exit cap it comes out with some wacky IRR's.

Aug 28, 2018 - 5:24pm

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Jul 25, 2019 - 3:28pm

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