Multi-Family Real Estate Acquisition Excel Model - Includes IRR Hurdles and Refinance Options

I have done quite a few real estate models over the year. One of the setups I have never fully built out was an annual-based model that allowed for IRR hurdles (meaning you are doing a joint venture between investors and sponsors) and the complex logic of a dynamic refinance liquidity event. All of these things affect the cash flow that is available to split and how it is split.



Pricing
Note, after purchase, you will be sent to the download page. This will have all 5 real estate models. This one will be the 5th and will say 'multi-family' by it. I will also e-mail your PayPal e-mail with the template.

The main purpose of using IRR hurdles is so an investor can give an incentive to the sponsor to try and get better returns for them. You can think of this as profit sharing driven by return performance. The investor pool will be willing to give the sponsor a greater portion of the profits depending on how high their IRR is.

For example, the cash flow may be split 80/20 up to 8% IRR, then from 8% to 12% it may be split 70/30. The investor would almost always have the higher share since they will be contributing the most equity, but you can see if they can get a higher return, it is worth it for them to be will to share more of the cash flow. The first hurdle can almost be thought of as a preferred return as it states all cash flow is split x%/y% up to that first hurdle and if that hurdle is never reached, the sponsor would not get any kind of promote in their share of the profits.

This type of waterfall distribution is really complex to get to work in excel. I have done it on a monthly level in other models, but never on an annual basis nor with logic to account for a refinance event in the middle of the project. Having this new template will cover a lot more needs that users have within the space.

The logic for how cash flows are split is really hard to do in your head. I don't think it is actually possible to do unless you have it in an excel model or some program. This template will show you how each tier fills up the buckets of the sponsor and investor and then as soon as a hurdle is reached, the remaining cash flow goes into the next tier and is split according to that promote schedule. It is all dynamic per the inputs and defined promotes/hurdles.

The logic for the refinance is also complex, but it allows you to dynamically see the debt service and cash available no matter what year you refinance and what year you exit.

The rest of the model is fairly common for the multi-family real estate acquisition space. You have various variables that define revenues, expenses, and the growth of both. I did put in some drop-downs so you can avoid the detailed population of unit makeup and expenses and just put in a single number for current revenue and expenses. If you would like, the model allows you to pick 'detailed assumptions' or 'high-level assumptions'.

I would suggest only using the high-level view if you are wanting a quick view of the numbers for yourself, but if you are preparing something for outside audiences the detailed option is what should be used.

The executive summary is what was designed to be printable. I built this in because the Pro-forma detail tab is too busy and has too many light yellow input cells to make look ready for printing.

Other than that, this template has just about everything you need to analyze real estate deals quickly and have something that is straight forward to investors.