Multi-family Real Estate - Joint Venture Model - IRR Hurdles, Refinancing, and Exit Assumptions
Originally published: 03/09/2019 17:32
Last version published: 09/08/2022 10:04
Publication number: ELQ-64425-10
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Multi-family Real Estate - Joint Venture Model - IRR Hurdles, Refinancing, and Exit Assumptions

Model up to a 10 year annual pro forma that caters to the specific assumptions related to multifamily real estate.

Recently updated to handle up to four properties at once instead of just one and added a DCF Analysis with NPV for each property and in aggregate. This is done for the Limited Partner and General Partner cash flows.

The model can run for any amount of years (from 1 to 10). The revenue assumptions are based on a current rent roll and on the rent roll assumptions you can mark how much you want to increase the current by in order to determine your year 1 rents for all the different unit types.

The 'pro forma detail' tab will let you define all the growth rates for rent and expenses as well as the cost per unit for certain items across all 10 years.

The joint venture part comes into play as you are able to define how much of the equity is brought in from an investor pool vs. a sponsor. Then, the cash flows are returned based on 3 IRR hurdles of which the cash can be split at different percentages in each hurdle as well as a final amount for anything beyond the last hurdle.

There is an assumptions for the year you want to have a refinance on your current loan. You don't have to have this and can put 'N/A' in the box if you don't want to plan for the event. If you do want to plan for it, you just pick the new loan terms and year of the refinance. This results in more cash flow to be distributed and often times you may be able to get better terms after operating for a few years.

The user can model an exit or mark 'N/A' for that if no exit is to be planned for. If there is an exit, then the new refinanced loan will be paid back and the remaining cash flow will be available for the distribution schedule. This all happens automatically as you adjust the assumptions.

On the initial loan, it is possible to mark how long it is interest only for or mark it as 'N/A' if that doesn't apply.

Additionally, for the revenue and expenses, there is an option to just use a high-level figure for the starting revenue and annual expenses. This is if you are trying to move fast and just want to see how the numbers play out without driving into all the details of rental income and expenses.

There is a visual to display the cash flows that go to the investor and sponsor pools. There is also a summary on the 'pro forma detail' to model out what a smaller investment would look like within the investor pool.

The model is really dynamic in nature and you can easily 0 out anything that is not applicable without breaking anything.

The user can define their exit cap rate and there are slots to account for loan penalties and other fees if applicable.

The tabs have been separated out to show a nice clean executive summary of all the high level financial items and the waterfall distributions.

This Best Practice includes
1 Excel template and 1 tutorial video

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Further information

Plan out the financial performance and resulting cash flows of a real estate join venture, specifically for multi-family acquisitions

When looking for up to 10 years on an annual basis.

Going past 10 years.

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