Modeling Multiple Tranches of Capital Sources Dynamically

[Anonymous]

I don’t think you covered the Error Checks in you presentation on building the multiple tranches of capital sources model.

Also, at the end of the presentation you mentioned connecting this model to the equity waterfall model. I would have thought this model would be connected to the Uses of capital in a development model. If not, I’d like to know more about how this ties to the equity waterfall model.

Thanks.

[Spencer Burton]

You’re correct. I missed showing you how to do the error check. The completed model does include the formulas, but I’ll follow up with an update to the video to add the error check formulas.

In terms of how this module connects in your DCF. The Uses are modeled in your Investment Cash Flow section. Uses could be as simple as acquisition costs, or as complex as development budget forecast. If you’re modeling a complex capital stack like this, the Uses will most likely be either value-add or development budget cash flows.

How this module connects with the Equity waterfall is a whole different issue. If you recall from my ‘Introduction to Partnership-Level Modeling’, we calculated the contributions required of each partner by taking any negative cash flow in the property-level net levered cash flow line and splitting than based on each partner’s ownership share. Those contributions were assumed to be made pari passu (at the same time). However, partner contributions are not always pari passu, hence this module.

So to model non-pari passu partnership contributions, instead of following the methodology taught in the Partnership-Level Modeling course you would simply link the respective partners contributions line in the equity waterfall to their sources line within this module.

I’ll likewise follow up with a quick video showing you how you might link this module to your DCF and equity waterfall.

Thanks for the question!

[Spencer Burton]

As promised, I’ve added two videos to the Modeling Multiple Tranches of Capital Sources Dynamically lecture.

The first video shows you how to complete the ‘Error Check’ formulas. The second video shows you one way to integrate this module into a full real estate model.

You can find the updated lecture here:

https://www.adventuresincre.com/academy/courses/advanced-concepts-real-estate-financial-modeling/lessons/modeling-multiple-tranches-of-capital-sources/

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