What better way to spend some free time over the Thanksgiving holiday, than to record myself completing a real estate private equity technical interview exercise! While I’ve offered help with the real estate technical interview in the past, I’ve never just grabbed an actual technical interview case study and walked our readers through how I would complete it. So, in this video, I spend an hour and 15 minutes doing just that. Follow along by downloading the companion Excel file.

If you’re reading this, you’ll probably also find value in our ‘How to Prepare for a Real Estate Technical Interview‘ post.

Source of the Technical Interview Case Study (Modeling Exercise)

So I was lurking on WSO earlier this week, and I came across a thread from someone requesting help to prepare for a real estate technical interview. Well, about four comments into the thread, a contributor (Yakehito) shared a ‘Modeling Exercise’ he’d been given as part of a top tier REPE company’s interview process. According to Yakehito, he/she had been provided with nothing more than a blank Excel file, a two hour window, and a list of assumptions. You can find them here (as well as re-posted below).

So reading through the assumptions, I thought “our readers would probably find it useful if I were to do this exercise and record myself while I do it.” So that is exactly what I’ve done. Below, you’ll find the assumptions from the aforementioned thread, together with a video I recorded (warning: it’s long and boring!) and the finished product for you to download and follow along as you watch.

And while I’m on the subject, if you haven’t already you should really check out WSO’s Real Estate Forum. As far as I know, it is the only decent real estate forum for institutional CRE professionals out there.
a discussion of the A.CRE Accelerator real estate financial modeling courses

Modeling Exercise Assumptions

All inputs below should be flexible assumptions

Development Program

  • 200,000 SF office building
  • Land purchase price: $20M ($100 per FAR)
  • Closing Costs: 1% of purchase price
  • Hard Costs: $300 psf
  • Soft Costs: (excluding TI’s, LC’s and Debt): 15% of hard costs
  • TI’s: $60 psf – paid at tenant occupancy
  • LC’s: $18 psf – paid six months before tenant occupancy

Construction & Lease-up

  • 24 Month Construction Period, beginning at land close date
  • Costs spent evenly over construction period
  • 2 Tenant Lease-up of equal size (one tenant at construction completion; one 6 months after completion)
  • Lease up to 95%
  • Rent $4.25 NNN (I’m assuming monthly)
  • Free Rent: 3 months free
  • Annual rental bumps: 3%
  • Annual Operating Expenses during Lease-Up: $16 psf

Debt Assumptions

  • 60% LTC
  • Rate: 5% all-in interest rate
  • All equity drawn first; then debt
  • Use available cash flow to offset debt costs, as available

Hold Period:

  • 5 years after stabilization
  • Exit Cap Rate: 5.5%
  • Transaction Fees: 1.5%

Joint Venture Structure

  • LP invests 95% of required equity / GP invests 5%
  • All cash flows are distributed 95/5 until the LP has achieved a 12% IRR
  • Any excess cash flow thereafter is distributed 20% to the GP and 80% to the LP

Required Output

  • Required Project Equity, Net Profit, IRR and ROC (Return on Capital)
  • Required LP (after promote) Equity, Net Profit, IRR and ROC (Return on Capital)

What This Is And Is Not

The finished model that comes out of this exercise is not meant to be used for actual deals and likely contains errors – I knocked it out in less than two hours. And while I performed error checks along the way, I have not thoroughly audited it for errors.

With that said, for those preparing for a real estate technical interview, I think watching and listening to how I would approach this exercise will be really helpful for you as you craft your own strategy and develop your own techniques. I’ve said this before, but I learn the most when I’m looking over someone else’s shoulder watching them model, and then implementing what I learned from them into my own modeling. So hopefully, you’ll find educational value in this exercise.

Video – Watch Me Tackle a Real Estate Modeling Exercise in Excel

Follow Along using the Excel File from the Video

To get the most out of this video, I highly recommend you download the Excel file I use in the video. In that Excel file, you’ll find two tabs. One tab with my completed work and the second tab, a pre-formatted blank worksheet meant for you to use to follow along.

Download The Model

To make this model accessible to everyone, it is offered on a "Pay What You're Able" basis with no minimum (enter $0 if you'd like) or maximum (your support helps keep the content coming - typical real estate models sell for $100 - $300 each). Just enter a price together with an email address to send the download link to, and then click 'Continue'. If you have any questions about our "Pay What You're Able" program or why we offer our models on this basis, please reach out to either Mike or Spencer.

Note (especially for Gmail users): The model is sent via email and occasionally is blocked by spam filters. If you don't see the email arrive within five minutes, check your spam folder.

Watch Me Model - Technical Interview Modeling Exercise Excel File

  • The file used in my 'Watch Me Model' video where I complete a real estate modeling exercise
  • In this video I model:
    • Development cash flows
    • Operation cash flows
    • Construction and permanent debt cash flows
    • Two-tier waterfall cash flows
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About the Author: Born and raised in the Northwest United States, Spencer Burton has over 15 years of real estate investment and development experience. In his current position, Spencer assesses new acquisition, development, and debt opportunities for a $45bn real estate fund. He resides in Dallas, TX.