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Scenario Analysis using the Equity Waterfall Model

I received a question this morning asking how to use scenario (or sensitivity) analysis with our Real Estate Equity Waterfall Model. I started to answer the question via email, decided to build an Excel file to go along with my answer, and ultimately concluded that a video would be the easiest way to walk you through how I do scenario analysis.

Now keep in mind, Mike touched on this subject in a previous blog post several months back on how to build data tables for real estate analysis. This post/video covers the same topic, but comes at it in a slightly different way. In my mind the question comes down to: how do we analyze the effect of changes in the terminal cap rate and changes to cash flow over the hold period on LP, Sponsor, and property level IRR? I hope the video below answers that question, and provides you with a foundation to do your own real estate scenario/sensitivity analysis.

I’ve attached a link below to the Excel file used in the video. If you have any questions, please don’t hesitate to contact either Mike or I.


Scenario Analysis using the Equity Waterfall Model
  • Scenario analysis using the data table feature in Excel
  • Based on an earlier version of the real estate equity waterfall model