What financial modelling is done in a RE debt fun?
Hi, was wondering what type of modelling would be required for a real estate debt fund that does all sorts of investments from lending loans/development finance/mezzanine etc..
Also was wondering what sort of hours to expect in this type of role at one of the largecap PE funds?
thanks
Would really appreciate an answer and maybe a sample model for this. Definitely a struggle to find debt underwriting templates online.
Yeah it sounds interesting but there's such little info on this, even WSO and M&I don't have anything in detail on this.
I got you
Are you refering to the sample model DPFU1418 asked for, would it be possible for me to also take a look please?
Also interested in seeing a template. I have an interview next week for a debt fund
Would also be very interested in seeing a template. Have a couple of interviews and am struggling to find an actual debt-focused template.
Can you also share with me please? Thank you.
my shop still uses the excel based Danberg model
What's the Danberg model? Can you share?
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Typically if you're talking just a Pref/Mezz loan, it's as simple as building out a normal financial model, getting to cash flow available before debt service, then incorporating your senior debt table, then running the remaining cash flow through another debt table for pref/mezz. The emphasis of the analysis is does the debt service cover with an acceptable buffer at relatively stressed assumptions. Little different than building models when you're the common equity because in those cases every little facet of your business plan that adds or subtracts a penny off of cash flow is going to affect your IRR. With debt you typically just take a T-12, assume super modest growth rates and exit caps and then look for a certain minimum DSCR and reversionary payoff ratio. It's sort of a binary analysis because it's a fixed income investment and if the deal isn't going to cover on paper you're just not going to do it period.
When you start getting into hybrid deals and/or A/B notes the execution and legal process is typically what gets trickier but the modeling is all the same.
Depends entirely on the transaction. If a reputable debt broker is involved, you’ll often get a good quality model with the majority of flexibility / outputs required. If it’s a bilateral negotiation with a less sophisticated sponsor, it may just be a simple cash flow. Then there’s other factors like how hairy the deal is, how complex the capital structure is, what level of leverage is being sought etc.
Fund I’m at invests across the capital structure, and generally speaking if I need to build my own model for a new transaction I’ll just take a previous model from the same asset class and adjust it accordingly. Only real difference is how many layers are needed in the cash flow waterfall, I.e. are you just modelling down to a senior debt tranche, or are you in the equity and have to model out the whole cap structure above.
For hours, if you’re looking at vanilla lends and getting good quality info it can be pretty light. If you’re working on complex deals with patchy info it can get heavy. Given large caps generally have a fairly high minimum ticket size requirement, particularly if they’re leveraging their position, I would assume this comes with better quality info from more sophisticated sponsors / brokers, which helps reduce the hours.
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