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Level 4
Level 4: Welcome
In Level 4 I will focus on different tiers of construction debt, mezzanine and bridge, sometimes referred to as subordinate debt. It may be the case that a developer does not have the equity or perhaps it may be more financially viable to draw additional debt over using equity. The modelling is nearly the exact same as senior debt but what needs to be implemented is priority on drawdowns and paybacks which you will see from the appraisal.
Drawdown prio = Bridge>Mezz>Senior
Payback prio = Senior>Mezz>Bridge
Level 4 also introduces rental growth in its uncompounded form. The challenge with this is locking in a term (rent reviews/increases are only possible once per year in Irish residential). I have built in a considerably basic rental growth calculator which still lacks real world application in the Irish market but for now this is fine. If you are going to use one of these please make sure you do not let your rental growth exceed 4% per annum, this is due to RPZs in Ireland which I will talk about in more detail later on.
Note; One issue people run into when modelling for rental growth in yearly cycles is that the disposal will generally land on a date just before the next rental increase, losing out on that extra bit of growth on their sale yield. While not catastrophic it may be the difference between that 15->16% IRR.
Level 4: About
Level 4: Features
Level 4 introduces;
Mezzanine Construction Debt
Bridge Construction Debt
Day 1 rent on PC accounting for rental growth
Growth and term calculators at the top of the cash flow
The relevant cash flow line items
Excel functions:
INDEX/MATCH – Equivalent to H/VLOOKUP but a bit more forgiving. These functions mixed can help you identify a data point in an array given a specific input. In cell I28 I wanted to find what is the rent roll on PC, that also factors in rental growth, that is only identifiable from the cash flow. I INDEX the array of rental income and match the rental term to that of the first time a 1 appears to help me do this.
IFERROR – Sometimes dealing with dates can give you #ERROR #VALUE or some other scary looking result that should not be that big of a deal…but to excel it is. E.g. I use DATEDIF but my starting date is before my end date, understandable that it should be an error but I am aware of it and don’t want it to show. We use this formula to stop these roadblocks from happening. Be very careful with the use of this formula and don’t go throwing it around as it can very easily hide mistakes on you and make it very tough to source them. You can see my use of the formula in cell Q12:EF12.
Whilst every effort has been made to ensure complete accuracy, BTR Ireland accepts no responsibility to anyone whatsoever for any errors in this financial model or for any error or loss that may result from using it. Potential investors and their professional advisers should review and carry out their own due diligence on this financial model themselves and form their own views in relation to the reasonableness, completeness, accuracy of calculations and achievability of the projections.
Level 4: Text
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