I watched your video “Video Walkthrough – Underwriting a Hypothetical Value-Add Office Investment” and saw how you setup the capex for the transaction. I was trying it in my own model and noticed that it doesn’t change the actual cash contribution required for that first year if you’re running a negative CFO.
In my scenario, I would buy a vacant property, take 4 months to renovate with $350,000 (which I broke out evenly over that period) it and have the tenant move in during month five at $36/SF. It shows my equity contribution for the purchase, but the dollars needed to take care of that renovation need to show up somewhere which I expected to see in the initial contribution (versus doing some type of separate capital call). Do I need to use the development feature or do I need to do something else like change the “stabilized” year selection?
Great question! The model calculates the initial capital contribution (e.g. equity required to get to stabilization) and reports that amount under ‘Equity’ in the ‘Initial Investment’ section of the Summary tab (cell Q43). However, to see the total equity required over the hold period you’ll go to the Equity CF tab (Waterfall Tabs to ‘Show’ on the Summary tab), where in cell D13 you’ll find the all-in Equity requirement.
With that said, if the intention is to hold equity in reserve until some future point when that equity will be drawn on to cover future capital requirements, the waterfall won’t accrue a preferred return on that amount until it is drawn on.
