Financial Modeling & Investment Analysis Flashcards

Which of the following best defines 'promoted interest' (promote) in a real estate private equity fund?

Answer: The GP's disproportionate share of profits above a hurdle rate

A promote is the GP's carried interest—a larger-than-pro-rata share of profits earned after LPs receive their preferred return hurdle.

In real estate modeling, 'mark-to-market' rent analysis compares:

Answer: Current in-place rents to current market rents

Mark-to-market analysis quantifies the upside or downside between leases currently in place and prevailing market rents at lease expiration.

A hotel property generates $8M in revenue, $5M in operating expenses, and $500K in FF&E reserves. What is the NOI?

Answer: $2.5M

NOI = Revenue − Operating Expenses − FF&E Reserve = $8M − $5M − $0.5M = $2.5M.

An investor underwrites an apartment complex using a 5.5% cap rate today and assumes a 6.0% exit cap rate in year 7. This 50 bps spread represents the investor's assumption about:

Answer: Asset age and increased investor risk at exit

A higher exit cap rate accounts for greater investor risk perception as the property ages and capital expenditure needs increase.

What does the price-to-earnings (P/E) ratio translate to in real estate valuation?

Answer: Price-to-NOI ratio (inverse of cap rate)

In real estate, the inverse of the cap rate (Price / NOI) is analogous to the P/E ratio in equity markets.

Which of the following is NOT typically a line item in a real estate operating expense budget?

Answer: Debt service payments

Debt service is a financing cost that falls below NOI; it is not an operating expense used to calculate NOI.

In a real estate LBO model, increasing leverage while holding NOI constant will typically:

Answer: Increase the equity IRR and increase risk

Higher leverage amplifies equity returns when asset performance exceeds debt cost, but simultaneously increases financial risk.