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.