hi there,
I was practicing some RE modelling and came across the "Related" case, found in http://www.wallstreetoasis.com/forums/real-estate…
I was wondering whether anyone could take a look and give me some useful feedback. I don't think in the modelling tests you're asked to do at interviews they're expecting you to do it 100% accurate but at least to see your modelling skills, logical thinking, etc., am I right?
For those that wanna take a look, my main questions about the case are:
1) Not sure if i've projected rents the way they'd like to. I've set the 5% vacancy rate as a target, and then increase current units until it reaches the target vacancy
2) Is the debt modelling part acceptable?
3) Don't know how to do the equity waterfall between the GP and the LP (it seems it's extra credit, though)
4) If we look at 1YNOI, the value is 75M approx. Why would Related pay 110M? Are they implying 75M goes to the purchase price and the rest goes to Capex improvements or the like?
5) Looking at the case and what's asked here, how much time do you think this should take a candidate to complete? Is it more appropriate to focus on the exercise and leave aside formatting, etc.? I did this in free moments at work, but in total it took me like 2.5 hours i'd say.
Here is the link:
https://drive.google.com/open?id=0Bzo6RZyaYjyBTlk…
thanks in advance for those that have some time to look at it, any feedback is much appreciated.
cheers!
due to time constraints, how dynamic do they expect a test model to be?
I guess a simple one should suffice, but was wondering whether someone in the industry could provide some input
Small things, I'm going by when I find them so there is no order of importance.
1) PGI NOT GPI 2) Your rent growth is sloppy but it works. Try this =PGI*(1+$Inflation/12)^(I6-1). That way your rent growth takes into effect per year not per month. This will allow you to $Inflation and change it in the future. 3)Your vacancy is fine but I would do it different, like the above rent growth. Either way you should have a percentage shown as to what inflation is in your model 4)Just saw how you did your expenses, use the formula for rent growth I gave above for increase in expenses. 5) You have a stagnant cap rate, you use 5% for every year for a valuation?
6) You are not paying an P&I in month 1? 7) Not the easiest to read, which is why most models should include several tabs for amort table, inputs, and finance dashboard. 8) Highlight important rows like PGI
First thing thank you for your input!! Much appreciated.
1 to 4: got it 5) I did it like that cause they only give one cap rate, which is supposed to be at year 2 where you refinance so you can see the LTV at that time. It was more an exercise for me to build a dynamic model whereby you could just say 2,3,4 years holding period, then the model takes the one it is (more looking at the modelling part of it, rather than 100% accuracy) 6) what u mean? 7) I agree, I was trying to test myself to do it in +/- 2 hours cause I guess in potential interviews they don't pretend you to build a 100% accurate, 100% clean model in a short time frame do they? 8) Got it
overall would you consider it's acceptable for an interview? thanks again for your time!!
I misread a couple things when I was hastily going over the case study.
-Ignore the formula, at least the /12 part, I thought it was monthly, therefore please ignore #6
Pretty sure top Line is GPR (Gross Potential Rent) Then Vacancy Loss Then EGI (Effective Gross Income) EG
Investopedia: What is 'Effective Gross Income - EGI' The amount of income produced by a piece of property, plus miscellaneous income, less vacancy costs and collection losses
Read more: Effective Gross Income - EGI Definition | Investopedia http://www.investopedia.com/terms/e/effective-gross-income-egi.asp#ixzz… Follow us: Investopedia on Facebook
Will check it out for you later today bro
thanks bro!!
I'll take a look when I get a chance.
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