Test Taker First Name: Prajal

Test Taker Last Name: Ghimiray Instructions:

Test Taker Email: prajalghimiray107@gmail.com 1. Answer all the questions below
Test Taker Phone Number: 9832801569 2. Once you finish make a simple DCF m

1. Our client is a real estate private equity company that focuses on multifamily acquisitions. A property we are looking at has a
What is the cap rate? NOI Price
Cap Rate = NOI/Price $567,678 $10,650,567
Test Taker Answer: 5.33%

2. The same client was told by a broker that one of his listings is selling for roughly $55,000,000 at a 6% cap rate.
What is the rough estimate of the NOI of the property? Purchase Price Cap Rate
Purchase Price = NOI/Cap Rate $55,000,000 6%
Test Taker Answer: $3,300,000

3. The property acquisition price is $45,500,000. The bank is lending the acquirer $25,000,000.
What is the LTV? Acquisition Price Lending Amount
LTV = Lending Amount /acquisition price $45,500,000 $25,000,000
Test Taker Answer: 54.95%

4. Describe what a promote structure is (also known as a waterfall) for sponsors and investors in real estate?

Test Taker Answer: Real estate sponsors usually invest their own capital into a deal alongside their equity co-inve

5. Please describe the relationship between debt and equity in real estate.

Test Taker Answer: Real estate debt is a debt instrument that the borrower is obliged to pay back with a predeter

6. What is the difference between levered and unlevered cash flows?

Test Taker Answer: Levered free cash flow refers to the amount of funds that is left over once debt and interest o

7. What are the two main types of "capital events" or "exits" in real estate ?

Test Taker Answer: Both PE funds and REITs provide an alternative way to invest in real estate. Rather than purc
r all the questions below
you finish make a simple DCF model and debt amortization schedule with the assumptions provided

property we are looking at has a net operating income (NOI) of $567,678. The asking price is $10,650,567.

at a 6% cap rate.

n real estate?

eal alongside their equity co-investors. While it is possible for sponsors to subordinate their own capital to that of their investors, it is far more

ged to pay back with a predetermined set of payments. The debt instrument is secured by a specified real estate property as collateral. Rea

ft over once debt and interest on debt have been paid. Levered free cash flow = Unlevered free cash flow – interest – principal repayment

t in real estate. Rather than purchase and operate properties directly, investors can pool their money with other investors. Once these funds
t of their investors, it is far more typical that they earn the exact same returns as the other equity investors until they reach a certain return t

tate property as collateral. Real estate debt typically takes the form of a mortgage or deed of trust. Equity real estate investing earns a retur

interest – principal repayments Unlevered free cash flow refers to the amount of funds that a company has before interest paym

er investors. Once these funds have been pooled together, management teams with real estate expertise take an active role in deciding ho
 til they reach a certain return threshold.The amount of money paid to the sponsor above the amount earned on his/her contributed capital t

l estate investing earns a return through rental income paid by tenants or capital gains from selling the property.

mpany has before interest payments and other obligations are met. Unlevered free cash flow = EBITDA – Capex – Working capital – Tax

ke an active role in deciding how and where to invest those funds in order to provide the investors with passive income. Additionally, both ty
on his/her contributed capital to the deal is the promote.

Capex – Working capital – Tax.

ve income. Additionally, both types of funds can pursue similar real estate investment strategies, so the distinction between what a PE fund
ction between what a PE fund does and what a REIT does can sometimes be confusing. The differences between the two are often more a
tween the two are often more about the legal and operational aspects of the businesses.
Assignment: Create a simple Discounted Cash Flow Analysis (DCF) for
1. Determine the Net Operating Income (NOI) for each year
2. Determine the cash flow for each year
3. What is the Acquisition Cap Rate?
3. Determine the cash on cash return for each year
4. What is the IRR?

Property Details:
Asset Type: Multifamily
Units: 354
Purchase Price: $24,000,000
Vacany: 10%
Exit Cap Rate: 5%
Rent Assumption (Gross Income): $8,500

Operating Expense Assumptions:

R&M $200
Cleaning $215
Utilities - Electricity $115
Utilities - Water/Sewage $215
Utilities - Gas/Trash $500
Marketing $125
Payroll $1,200
RE Taxes $900
Insurance $400
Property Management Fee 5%
RUBS $200

Debt Assumptions
Loan to Value (LTV) 65%
Interest Rate 4.50%
Amortization 25
Amortization
Further Modeling Assumptions
Rental Annual Increase 2%
Expense Annual Increase 2%

Tax Rate 67797/ (354*400)

21%
Initial Investment
I (Years) 10
sh Flow Analysis (DCF) for 10 years and a debt amortization table. Then within the DCF Determine:

Create Model Below Here

Year 2012 2013
EBIT 24,000,000 24318600
$67,797 per unit Less:Tax (21%) 5040000 5106906
Plus: Amortization 60000000 6079650
Less: CAPEX 1272630 1272630
per unit Unlevered Cash Flow 77,687,370 24,018,714
NOI $23,929,200 $23,923,890
Acquisition Cap Rate $1.00 $1.00
per unit Cash to Cash Return 31% 101%
per unit IRR $23,693,306.08 $18,714.00
per unit
per unit
per unit
per unit
per unit
per unit
per unit
of gross income
per unit

Years
 2014 2015 2016 2017 2018
24637200 24955800 25274400 25593000 25911600
5173812 5240718 5307624 5374530 5441436
6159300 6238950 6318600 6398250 6477900
1272630 1272630 1272630 1272630 1272630
24,350,058 24,681,402 25,012,746 25,344,090 25,675,434
$23,959,290 $23,923,890 $23,823,000 $23,955,750 $23,575,200
$1.00 $1.00 $0.99 $1.00 $0.98
101% 101% 101% 101% 101%
$350,058.00 $681,402.00 $1,012,746.00 $1,344,090.00 $1,675,434.00
 2019 2020 2021
26230200 26548800 26867400
5508342 5575248 5642154
6557550 6637200 6716850
1272630 1272630 1272630
26,006,778 26,338,122 26,669,466
$23,681,400 $23,858,400 $23,999,982
$0.99 $0.99 $1.00
101% 101% 101%
$2,006,778.00 $2,338,122.00 $2,669,466.00