Multifamily Deal Analysis & Valuation

• Capitalization rate (Cap)

• Internal rate of return

• Equity mulitplier

• Cash on cash return

• Net Operating Income / Property Value

• “Going- In” = Upon acquisition

• Factors affecting cap rates

  • interest rates

  • comparables sales

  • property age

  • property condition

  • value add upside

  • property location

—> interest rise pressure in cap rates rise, if interest rate are dropping the value of property is going up and because of that the cap rates decrease as well

• Discount rate at which NPV of cash flows equals zero

• Annulized, time weighted return on equity invested

• “apples to apples comparison to other investment vehicles

• factors in “time value of money

• Multiple of total equity investment over entire investment hoizon

• total distributions / Total equity investment

• Does not factor in the time value of money

• Annual dividend yield from operations to investor

• net of refinance and sale proceeds

• projected income stream

• annual cash flow from operations / Equity invested

• Tagregtreturns drive value

  • fund targets

  • risk adjusted return targets

• Target

  • IRR (most important)

  • Equity Mulitplier

  • Cash on Cash

-> often a mixture of all

• Sale Compareables

  • recent transactions in submarket

  • Price /unit

• replacement Cost

  • Cost to build similar structure in similar location

• Market Cap Rates

• Cash on Cash

  • dependetn on business plan

  • development and heavy repositioning 0 - 2%

  • light repositioning / stabilzed 5 - 8 %

• Equity Mulitple

  • dependet on hold period

  • 3- 5 year —> 1,3 x - 1,5x

  • 7 - 10 year —> 2x - 3x

• IRR

  • Capital Risk buckets

• Core

  • Class A Product , CBD locations

  • 7 - 10 % levered IRR Target

• Core plus

  • Class A Product, strong locations with potential

  • operational / leasing / physical upside

  • 10 - 13 %

• Value Add

  • Class B+ - B - product, medicore to strong location with definite opertional / leasing / physcal upside

  • 13 - 15%

• Opportunistic

  • major operations / leasing ( physical upside in vaying location

  • 15 - 20 % levered IRR target