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Real Estate Financial Modeling Accelerator (Updated April 2024)

Prior to launching the Accelerator program, Michael and I fielded email after email requesting a more structured real estate financial modeling training program on the site. Over the years, we've covered hundreds of real estate modeling…

Institutional Investor

An institutional real estate investor is a large company or organization with substantial capital and an allocation to real estate investments. Pension funds, life insurance companies, investment banks, sovereign wealth funds, and endowments…

Limited Partner

A limited partner is a passive, in terms of management responsibility, partner in a real estate investment. In a typical real estate partnership, the general partner (sponsor or GP) manages the day-to-day aspects of the investment strategy and…

Special Servicer

The designated party responsible for handling situations whereby the borrower defaults. A special servicer has the authority to structure loan workouts or institute foreclosure proceedings. This is in contrast with a standard mortgage servicer…

Levered Cash Flow

The net cash inflows and outflows of a real estate investment taking into account cash flows related to financing.  Levered cash flows generally consist of total investment costs, loan fundings and payoffs, net operating cash flows after financing,…

Loan Amortization

The repayment of the principal balance of a loan through periodic payments over time. In an amortizing loan, a portion of the loan payment each period is used to pay the interest owed for that period with the balance used to pay down principal…

Interest Reserve

A reserve account held by the lender of a construction loan and used by the borrower to cover loan interest shortfalls during construction and lease-up. The interest reserve is funded via the initial proceeds from the construction loan, and…

Construction Financing

A short-term loan, typically with a floating interest rate, issued by a lender to finance the construction of a real estate project. The loan is paid out to the borrower in draws as construction progresses. After construction is complete…

Earnest Money Deposit

An initial deposit paid by the buyer as a show of good faith to the seller. The money is typically held in escrow until the transaction closes and all suspensive conditions have been fulfilled, following which the earnest money is used to offset…

Debt Service Coverage Ratio

A financial metric used in real estate to measure a property’s ability to cover its debt obligations. The Debt Service Coverage Ratio (DSCR or DSC) is calculated by dividing the net operating income by the debt service payment and is often…

Discount Rate

The rate at which future cash flows are discounted. We discount the value of money that is expected to be earned further out in the future because it is less certain that we will receive it. So a dollar earned is worth less and less the further…

Pari Passu

A Latin term used to describe the equal treatment of investors, returns or securities. In real estate, the term is commonly used in waterfall distribution models to reference the pro-rata distribution of profits based on each investor’s initial…

Occupancy Cost

The total cost incurred by a tenant in order to occupy space in a building. These costs are all stipulated in the lease agreement and include items such as base rent, tenant reimbursement expenses, percentage rent, parking charges, etc.

Sources and Uses

A schedule which provides an overview of where capital for a real estate project is sourced from (sources) and how capital is deployed (uses). The sources side includes items such as loan proceeds and investor equity contributions, whilst the…

Permanent Financing

A long-term mortgage loan typically secured by a fully stabilized and performing real estate asset. A Permanent Loan (i.e. Permanent Financing) often includes a fixed interest rate with a longer loan term (7+ years). The permanent loan may…

Free and Clear Return

The total unlevered (before debt) pre-tax cash flow of a real estate project divided by the total capital invested, generally expressed as a percentage on an annual basis. To clarify, the numerator is typically total unlevered pre-tax cash flow…