Tutorial: How to Model a Real Estate Development Construction Loan

NoePerrin's picture
Rank: Monkey | 65


I am creating some free videos teaching you the basics and more advanced concepts in RE modeling.

Please enjoy and feedback is appreciated !

Comments (17)

Jan 14, 2018

great vid, thanks. but what is your website? can't see it in the embedded vid.

Apr 7, 2018

It just links to the filled in and blank excel files

Free Real Estate Modeling Course:

Jan 14, 2018

Thanks! I'm doing a real estate case comp for school so this part will definitely be helpful.

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Apr 9, 2018

Thanks for sharing! Very helpful!! +1Sb

Apr 9, 2018

Appreciate the tutorial. You should caveat that this is an extremely basic scenario demonstrating the mechanics of calculating a capitalized interest reserve line item for a construction loan.

Some lenders will not let you realize expected operating cash flow as a reduction to your capitalized interest. Additionally, construction loans are generally floating with a floor and ceiling and not fixed.

Also, I think best practice is to show an operating cash flow reduction as a separate line in a sources and uses statement.

Apr 9, 2018

bump, want to know how it works too, especially when the loan included the interest reserve. assuming IO and NO IO is totally different too?

Apr 9, 2018

Yes, this loan includes interest reserve as well.

Apr 9, 2018

why would the jr be modeled first? the sr would to make sure there is enough cash flow to cover cause they would be repaid first in the case of a bankrupcy.

Apr 9, 2018

I was wondering this as well, but I think he means the junior funds would be drawn first, thus interest kicking in earlier than the senior.

Apr 9, 2018

Junior gets funded first so the senior has the maximum amount of subordination from the time their first dollars are funded into the deal. The interest rate the senior receives is reflective of the reduced risk relative to the mezz/sub debt. Note that all of this is being done behind the scenes, so from a borrower's perspective, none of this matters as they are paying a single interest rate.

Apr 9, 2018

OP have you done an LP waterfall?

It is similar to that in that the equity is drawn down first, then the jr debt , and then the sr. It is just another tranche of something that is being drawn down,

Apr 9, 2018

I understand this, but I am struggling with how interest is treated once the jr debt is fully funded.

Best Response
Apr 9, 2018
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