assumptions $ sensitivity table, 10 year cash flow, amortization tables, investment metrics (Pro Forma)

i WOULD LIKE EACH PAGE ON EXCEL TO BE COMPLETE BY 27THThe Project : The Flats at 146Flats Drive, Noblesville, IN 46060USE CoStar, Apartments.com and any other site that is helpfulAppraisal

The report is long and comprehensive. You do not necessarily need to read every word and you certainly do not need to memorize it! However, this does not mean you are absolved from understanding key content. Do not skim it randomly. Instead, try an approach similar to this:

1. Look at the table of contents to see what is included.
2. Do a first pass skim through to see how it is set up and note what kinds of details are provided; note what page numbers have useful information.
3. When you have time, go back and make a more detailed pass, returning to the pages you noted and extracting useful information. Be sure to note that you pulled this information from the appraisal, so you do not get confused about where it came from.
4. Compare the appraisal information with your own research. See how the data compare and see what is missing.
5. After you have done a first draft of your pro forma, you will probably note gaps and need to go back to the appraisal again to see if you can fill them / inform them from the information provided.

Limits of an Appraisal

Remember that an appraisal is a resource for you to gather data from and is not a statement of hard fact regarding the value of the property. In fact, two different appraisers would probably arrive at two different opinions of value based on the different assumptions they each made. What does this mean for you?

It means you cannot simply copy appraisal information into your pro forma and suggest that you have done any analysis! If you do end up using appraisal data in your the pro forma (which you probably will), you will need to explain what you used, why you accepted this information, and what (if anything) you compared it to.

For example:

1. Can you get market rents or vacancy from anywhere else?
2. Can you Google what a reasonable operating expense ratio is for multifamily properties in the Midwest?
3. Can you verify the information provided in the appraisal?
4. How does your research ultimately compare to the appraisal data? Do you agree with the appraisal assumptions?
5. Note what information you update or accept. You will want to keep a list of URLs you’ve looked into as you do your own research and verification.
6. Note what you did not have time to research or were not able to verify.

Multiple Values

After reviewing the appraisal, it should be obvious that there are at least seven possible price evaluations:

1. The as-is value provided by the appraiser (Exec. Summary and page 2)
2. The stabilized value provided by the appraiser (Exec. Summary and page 2)
3. The Income Capitalization Approach value noted by the appraiser (page 2 and page 57)
4. The Sales Comparison Approach value noted by the appraiser (page 2 and page 67)
5. The assessed value for tax purposes (pg 36) – note that assessments usual lag market valuation
6. The client’s pro forma value (note that the appraiser often refers to the client’s numbers or assumptions—which means the client has done their own analysis and have arrived at their own assessment of value.
7. The actual contract value for the acquisition, which is unknown to us. Remember that just because an appraisal gives a value, that does not mean that the seller agrees to sell at that price!

What to Include in Your Pro Forma

You are given a basic template to use, but everyone’s project will be slightly different. You can (and should) modify the template as necessary to best capture the needs of your model.

There are several best practices that your pro forma needs to follow.

Your pro forma should have no hard coded numbers except on the Assumptions Tab. You “drive” the pro forma by only entering inputs on your Assumptions tab and all other tabs pull from these entries. This ensures that if you change something, you do not have to remember to make changes on every related tab.

All sections on all tabs should be labeled with headers. This is not only a professional best practice, but it serves a practical purpose to help you stay organized and make sure anyone can look at your work and understand the analysis.

Your pro forma should include the following tabs/sheets:

(1) Assumptions & Sensitivity Tab, where all your inputs will be entered. Also include:

• a “Notes” section with explanations for your assumptions, citing sources used for inputs, and noting anything different about certain calculations. If you pulled info from the appraisal, note that as well.
• a 1-sided exit cap rate and IRR (or NPV)
• a 2-sided LTV and interest rate on permanent debt
• a 2-sided on exit cap and rent growth rate

(2) 10-year Cash Flow Tab:

• complete through BTCF
• you do not need to model income taxes (and there is no extra credit for doing so)

(3) Amortization Schedule Tab, including:

• a section for an existing loan or your assumptions about an existing loan
• a summary section for any assumed refi

(4) Investment Metrics Tab, including:

• Levered and unlevered NPV and IRR
• Levered Equity Multiple
• Annual and Average 10-year Levered Equity Yield (cash-on-cash)
• Partitioned IRR
• The waterfall distributions for the Sponsor (your client) and the project equity investors

If you need to make changes to the template and need some ideas, you can use the Appraisal to see key elements. Also, to give you a frame of reference and help you absorb the contents of the Appraisal, our client uses the following line items in their pro forma. You do not have to use these or copy these exactly; you can choose to combine some categories or add others. Your exact choices will depend on your specific property.

once this is done, please put these in slides, instructions for slide deck is uploaded