REIT Modeling Test

Here is a modeling test for Equity Residential REIT, they give 90 minutes to complete.

REIT interviews are similar to REPE ones- you are asked about cap rates, NOI's, thoughts on current trends, etc.

Salary is way lower, 75k with 10% bonus quoted in Chicago.

ANALYST CANDIDATE EXCEL EVALUATION

An opportunity exists to acquire a hypothetical 478-unit multifamily property in suburban Maryland. The property was built in 1999 and is fully stabilized. Build a dynamic real estate acquisition, operation, disposition, and financing model to evaluate the opportunity. Please provide an annual cash flow summary formatted to print.

General Assumptions:

  • ●  Acquisition Date: 4/1/2015
  • ●  Purchase Price: $110,000,000
  • ●  Stabilized Occupancy: 95%
  • ●  Rental Rate: See T-12 Financials Provided
  • ●  Revenue Growth: 4% annually
  • ●  Operating Expenses: See T-12 Financials Provided

o Management Fee = 2.5% of Total Income
o Tax's Reassessed at Purchase: $1,600,000 Year 1, 3% growth thereafter o Replacements: $350/unit per year

  • ●  Expense Growth: 2.5% annually
  • ●  CapEx - $600/unit per year
  • ●  Hold Period: 10 Years
  • ●  Exit Cap Rate: 6.25%
  • ●  Sales Costs: 2.75%

    Senior Mortgage

  • ●  65% Loan to Cost
  • ●  Origination Fee: 45 bps
  • ●  Interest Rate: 3.5%, Fixed
  • ●  Amortization: 30 Years

    Please provide a summary that includes the following metrics:

  • ●  Unlevered IRR
  • ●  Unlevered IRR Sensitivity Table (analyst choice of most relevant variables)
  • ●  Unlevered Return on Cost
  • ●  Levered IRR

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 (8)

  • Analyst 2 in RE - Comm
Apr 7, 2021 - 3:07pm

Speaking from my personal experience, but I think 90 mins is only enough to build a model and metrics, but not enough time for in depth valuation on the overall deal. 

However, I'm also trying to break into REPE so it could just be lack of practice on my end. Curious how other monkeys think about this. 

Thank you, OP, for sharing the test! 

Apr 7, 2021 - 5:42pm

For a test this simple I think it's (barely) enough time to get an idea of somebody's modeling skills and whether they can digest information fast enough to quickly form a high level opinion.

I get why companies (particularly IS brokerages and high deal flow REPE shops) run this type of time crunch test, because they have to quickly look at so many deals, but considering people coming into these interviews are already highly stressed I also find it a little bit silly. You're not going to see someone's best from these.

Personally, I think a 24-48 hour take home test is a far better indicator of somebody's actual skill set and the way they think. Have them build a model and a pitch deck in that time, then present at the next interview. It lets you see that within a reasonable amount of time they can get the numbers right, and gives the candidate an opportunity to really showcase how they think about a deal and their selling ability. You can also test more complex modeling skills with a longer time limit.

Apr 7, 2021 - 5:49pm

That's been my experience. We give people 24 hours to complete our test (about the same as this one) as I feel it removes the stress factor. I personally don't care much on their ability to think about the deal for this part of their interview, we treat the test as more of a pass/fail, purely mechanical exercise. I'm more focused on how well the model is built (can I change assumptions and will it flow through dynamically, are there random hard codes hidden in formulas, etc.) than whether they considered "adding laundry income" or something that wasn't included in the test or something like that. I'm sure that's more a function of my shop though vs. others that may have different priorities.

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Apr 7, 2021 - 5:49pm

After relocating to a new market and starting the recruiting process all over again, I've done more than a few of these over the last couple of weeks and must say this is a relatively standard test to have complete in 90 minutes (perhaps on the easier side). From a candidates point of view, I prefer the tests that are 2-3 hours long as I get to properly go through my work, add thoughtful sensitivities, different scenarios and format correctly whereas the 60-90 min tests feels a bit too rushed. The multifamily tests are generally much easier compared to commercial to complete in a short period of time, as you do not need to build a tenant schedule with different expirations, escalations, TI, void costs etc. so 90 minutes is fair game to deliver a strong, dynamic model IMO. 

In my experience, the expectations between a 24 hour test and 3 hour test isn't much (they are generally the same), so obviously prefer the longer time period in order to deliver a better result. However, as an employer, its hard to know whether your candidate had help or not during the modelling process so could end up hiring a person with lower modelling capabilities than you expected, which would be kind of a bummer down the road. 

Apr 7, 2021 - 5:55pm

Interesting to hear that 60-90 minutes would be sufficient here. Maybe we're looking at bad candidates, but I'd expect most models to come back partially unfinished with that time period (either not as dynamic as they should be, amortization schedule for debt not built out, etc.). I get enough bad models as it is with a 24 hour period. Your 2-3 hour mark is what I would expect to give a candidate for them to get to a finished product. 

I share the concerns about the take home tests, but haven't run into an issue yet (though I do run into an issue with people using pre-built models that have been repurposed, which is always pretty obvious generally).

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