Final Exam - Northbrook Court
docx
keyboard_arrow_up
School
Rowan University *
*We aren’t endorsed by this school
Course
03509
Subject
Finance
Date
Jan 9, 2024
Type
docx
Pages
1
Uploaded by comfortbriscoe
Private Equity & Institutional Real Estate Finance
Instructor:
Rafi Hovsepian
Final Exam – Case Study
Due Date:
Please refer to the date listed on Brightspace.
You are the portfolio manager of a single-asset real estate fund held in a private equity firm. On
December 31, 2011, your fund – consisting of your firm as General Partner (GP) and a prominent pension
fund as Limited Partner (LP) – acquired Northbrook Court Apartments, a 100-unit garden-style
apartment complex in Northbrook, Illinois, a suburb of Chicago. The acquisition price was $20 million,
with a 75% mortgage at purchase. The remaining 25% equity portion was provided as 90% LP and 10%
GP. Furthermore, in lieu of ongoing asset management fees, the GP and LP agreed to a waterfall with
lucrative hurdle rates for the GP. In return, the LP stipulated certain return requirements as follows:
Equity multiple for the fund of no less than 2.0x.
Equity multiple for the LP’s own investment of no less than 1.9x.
IRR for the fund of no less than 17.0%.
IRR for the LP’s own investment of no less than 16.0%.
Northbrook Court was sold on December 31, 2016. The LP is currently waiting on a post-sale summary
deal assessment regarding the asset’s performance during the Fund’s ownership. You are tasked with
preparing this assessment and reporting your findings to the LP in the form of a brief (1-2 page)
investment memo. The LP would like the memo to reference the results for both the deal and its own
investment, to ascertain if the above-listed equity multiples and IRRs were realized.
In order to perform this exercise, you must create an Excel summary file of the deal, showing a pro forma
during your ownership period. Please refer to the Excel file for the relevant modeling factors. In addition,
the Excel file contains a waterfall worksheet that will help you to calculate the deal, GP and LP-specific
metrics (you simply need to make sure that row 14 of the Waterfall worksheet links to the generated
annual cash flows of your pro forma). Aside from providing quantitative results, your memo should
highlight one or two factors that contributed to the return requirements being realized or unrealized.
(For example, if the return requirements were not met due to a low annual rent increase, then what rent
increase would have been needed for the return requirements to be met?)
Please make your memo AS PROFESSIONAL AS POSSIBLE – concise, fluid and well written, while checking
for spelling mistakes and run-on sentences. Also, please be sure to date your memo. Both the memo and
Excel model should be provided to me via email.
And remember that, even if your Excel does not contain the correct figures, your conclusions in the
memo should be based on your Excel findings.
Good luck, I’m sure you will all do well!
Discover more documents: Sign up today!
Unlock a world of knowledge! Explore tailored content for a richer learning experience. Here's what you'll get:
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Related Documents
Related Questions
Pls help ASAP
arrow_forward
Please don't provide answer in image format thank you
arrow_forward
Identify which fund transfer process each scenario best represents.
Scenario
Two years ago, Larry started a new business. Now he needs additional
capital to finance additional growth and is meeting with a group of "angel"
investors. If they decide to make the loan, they will do so without the use
of a middleman or other intermediary.
Wellington Industries would like to borrow additional debt capital. The
company has hired a firm to assist in the sale of a new issue of 10-year
bonds.
Anderson Animations, Inc. holds cash balances in an institution that, in
turn, loans out the funds to other individuals and companies.
Direct
Transfer
O True
False
O
O
O
Indirect Transfer
through an
Investment Banking
House
O
Indirect Transfer
through a Financial
Intermediary
True or False: The existence of financial middlemen and financial intermediaries decreases the efficiency of the financial markets.
arrow_forward
For part c please I’m lost
arrow_forward
You are an angel investor, and 4 entrepreneurs have approached you to build some innovative folding tables, and the proposals are as follows. Project A, an investment of 566967 and annual cash flows respectively of 415527, 209635, 199906 and 298311. Project B, an investment of 439043 and annual cash flows respectively of 417004, 150449, 117975 and 384645. Project C, an investment of 628001 and annual cash flows respectively of 140108, 507720, 225467 and 147962. Project D, an investment of 450834 and annual cash flows respectively of 102735, 111878, 508753 and 154070. If the rate expected by you is 21.33% per year of compound interest. Which project is more profitable according to the NPV (Net Present Value)?Question 1 options:
d
c
a
b
arrow_forward
2. Aggie Partners is raising their first fund, Aggie Partners Fund I, with $200M in committed
capital, annual management fees of 1.75 percent, carried interest of 20 percent, and a carried
interest basis of committed capital. The three individuals on the Aggie team have previously
managed the captive VC portfolio for the Presidio family. During the 10 years of
managing the Presidio's VC portfolio, the partners did not charge management fees or
carried interest, and they achieved an unknown GVM equal to K.
a. For any given K, solve for the carried interest, value multiple, and GP%.
b. How large must K be for the value multiple to be greater than 3?
How would your answer to parts (a) and (b) change if the carry basis were equal to
investment capital?
с.
arrow_forward
A private equity fund is targeting the acquisition of a warehouse
located in Irving, Texas. Its research of the Irving market reveals the
following:
Property Type
Cap Rate
Vacancy
OpEX (% of EGI)
Retail
10.05%
6.17%
40.44%
Office
8.65%
5.58%
48.74%
Multifamily
7.26%
4.98%
53.72%
Industrial
11.44%
6.77%
30.68%
•
If the projected first year net operating income (NOI) for the Irving
warehouse is $44,500, what is the estimated value of the property
using direct capitalization?
arrow_forward
Carefully read the following situation and data, and answer the questions that
follow:
You have recently been appointed as chief investment officer of a major charitable
foundation. Its large endowment fund is currently invested in a broadly diversified portfolio
of stocks (60 percent) and bond (40 percent). The foundation's board of trustees is a group
of prominent individuals whose knowledge of modern investment theory and practice is
superficial. You decide a discussion of basic investment principles would be helpful.
arrow_forward
You are an angel investor, and 4 entrepreneurs have approached you to build some innovative folding tables, and the proposals are as follows. Project A, an investment of 601620 and annual cash flows respectively of 162629, 102390, 194996 and 540881. Project B, an investment of 262256 and annual cash flows respectively of 241160, 25992, 279502 and 270678. Project C, an investment of 514012 and annual cash flows respectively of 181039, 554818, 386520 and 83787. Project D, an investment of 630067 and annual cash flows respectively of 311645, 36977, 442569 and 223467. If the rate expected by you is 4.33% per year of compound interest. Which project is more profitable according to the NPV (Net Present Value)?
Question 2 options:
b
c
a
d
arrow_forward
Understanding the Costs Involved in Mutual Fund Investments
Bob is debating purchasing a mutual fund, but he has some questions for his financial advisor, Cho. The following table presents information on four
different open-end mutual funds that Bob and Cho are discussing. Use the information in the table to answer the questions that follow.
FUND
NAV
NET CHG YTD % RET
MinT p
12.32
-0.04
2.6
TmRE r 15.77
0.06
5.5
PFIN
39.81
0.20
8.0
BRRT
43.21
0.29
9.1
BOB: After some research, I've narrowed it down to these four funds, but can you explain to me the relationship between 12b-1 fees and fund
performance?
CHO: Generally, funds that charge 12b-1 fees, such as MinT p, do not necessarily
outperform funds that do not charge these fees.
BOB: What about front-end load fees? For example, suppose BRRT has a front-end load fee of 6%, when do I pay this fee?
CHO: If you purchase 100 shares of this fund at the NAV, you will pay a commission of S
pay $
in front-end fees.
BOB: It sounds like these fees…
arrow_forward
An endowment invests $150,180,000 in WeGrow II, an early-stage venture fund with a 20% incentive fee and a 5% preferred return
[hurdle rate]. The fund invests in the following companies (for simplicity, ignore staged financing and management fees; assume
instead that all investments occur at the end of their denoted year):
Investment (Year
Invested)
$ 35,030,000 (2)
$ 20,030,000 (2)
$ 15,030,000 (2)
$ 20,030,000 (3)
$ 25,030,000 (3)
$ 100,030,000 (7)
$ 125,030,000 (10)
$0 (9)
$ 35,030,000 (4)
Instead of a 5% preferred rate, assume there is an 8% preferred rate with a 100% catch-up.
Required:
a. Recalculate the yearly cash flows.
b. What is the IRR to the endowment, net of fees?
Start-up Name
SPE Incorporated
NiteID Corporation
D-Ton Incorporated
IKL Limited
H&L Innovations
SimLife Technologies
Complete this question by entering your answers in the tabs below.
Required A
Recalculate the yearly cash flows.
Note: Negative amounts should be indicated by a minus sign.
Year Net Cash Flows
1…
arrow_forward
A Private Capital Company is being founded with a capital of 12,000 euros, which is covered by capital contributions from partners A, B, and 5bC. The participation percentages of partners A, B, and C are 45%, 15%, and 40%, respectively. Partner C, for their participation, also contributes a property valued at 13,000 euros. The capital will be deposited into an account maintained by the company at a designated bank. Required: Make the appropriate journal entries.
arrow_forward
A quick response will be appreciated
arrow_forward
please give answer for 4,5, and 6
arrow_forward
Kaimalino Properties (KP) is evaluating six real estate investments. Management plans to buy the properties today and sell them five years from today. The following table summarizes the initial cost
and the expected sale price for each property, as well as the appropriate discount rate based on the risk of each venture. (Click on the following icon in order to copy its contents into
a spreadsheet.)
Project
Mountain Ridge
Ocean Park Estates
Lakeview
Seabreeze
Green Hills
West Ranch
Cost Today
$3,000,000
15,000,000
9,000,000
6,000,000
3,000,000
9,000,000
Discount Rate
15%
15%
15%
8%
8%
8%
Expected Sale Price in Year 5
$18,000,000
75,500,000
50,000,000
35,500,000
10,000,000
46,500,000
KP has a total capital budget of $18,000,000 to invest in properties.
a. What is the IRR of each investment?
b. What is the NPV of each investment?
c. Given its budget of $18,000,000, which properties should KP choose?
d. Explain why the profitability index method could not be used if KP's budget were…
arrow_forward
SEE MORE QUESTIONS
Recommended textbooks for you

College Accounting, Chapters 1-27
Accounting
ISBN:9781337794756
Author:HEINTZ, James A.
Publisher:Cengage Learning,
Related Questions
- Pls help ASAParrow_forwardPlease don't provide answer in image format thank youarrow_forwardIdentify which fund transfer process each scenario best represents. Scenario Two years ago, Larry started a new business. Now he needs additional capital to finance additional growth and is meeting with a group of "angel" investors. If they decide to make the loan, they will do so without the use of a middleman or other intermediary. Wellington Industries would like to borrow additional debt capital. The company has hired a firm to assist in the sale of a new issue of 10-year bonds. Anderson Animations, Inc. holds cash balances in an institution that, in turn, loans out the funds to other individuals and companies. Direct Transfer O True False O O O Indirect Transfer through an Investment Banking House O Indirect Transfer through a Financial Intermediary True or False: The existence of financial middlemen and financial intermediaries decreases the efficiency of the financial markets.arrow_forward
- For part c please I’m lostarrow_forwardYou are an angel investor, and 4 entrepreneurs have approached you to build some innovative folding tables, and the proposals are as follows. Project A, an investment of 566967 and annual cash flows respectively of 415527, 209635, 199906 and 298311. Project B, an investment of 439043 and annual cash flows respectively of 417004, 150449, 117975 and 384645. Project C, an investment of 628001 and annual cash flows respectively of 140108, 507720, 225467 and 147962. Project D, an investment of 450834 and annual cash flows respectively of 102735, 111878, 508753 and 154070. If the rate expected by you is 21.33% per year of compound interest. Which project is more profitable according to the NPV (Net Present Value)?Question 1 options: d c a barrow_forward2. Aggie Partners is raising their first fund, Aggie Partners Fund I, with $200M in committed capital, annual management fees of 1.75 percent, carried interest of 20 percent, and a carried interest basis of committed capital. The three individuals on the Aggie team have previously managed the captive VC portfolio for the Presidio family. During the 10 years of managing the Presidio's VC portfolio, the partners did not charge management fees or carried interest, and they achieved an unknown GVM equal to K. a. For any given K, solve for the carried interest, value multiple, and GP%. b. How large must K be for the value multiple to be greater than 3? How would your answer to parts (a) and (b) change if the carry basis were equal to investment capital? с.arrow_forward
- A private equity fund is targeting the acquisition of a warehouse located in Irving, Texas. Its research of the Irving market reveals the following: Property Type Cap Rate Vacancy OpEX (% of EGI) Retail 10.05% 6.17% 40.44% Office 8.65% 5.58% 48.74% Multifamily 7.26% 4.98% 53.72% Industrial 11.44% 6.77% 30.68% • If the projected first year net operating income (NOI) for the Irving warehouse is $44,500, what is the estimated value of the property using direct capitalization?arrow_forwardCarefully read the following situation and data, and answer the questions that follow: You have recently been appointed as chief investment officer of a major charitable foundation. Its large endowment fund is currently invested in a broadly diversified portfolio of stocks (60 percent) and bond (40 percent). The foundation's board of trustees is a group of prominent individuals whose knowledge of modern investment theory and practice is superficial. You decide a discussion of basic investment principles would be helpful.arrow_forwardYou are an angel investor, and 4 entrepreneurs have approached you to build some innovative folding tables, and the proposals are as follows. Project A, an investment of 601620 and annual cash flows respectively of 162629, 102390, 194996 and 540881. Project B, an investment of 262256 and annual cash flows respectively of 241160, 25992, 279502 and 270678. Project C, an investment of 514012 and annual cash flows respectively of 181039, 554818, 386520 and 83787. Project D, an investment of 630067 and annual cash flows respectively of 311645, 36977, 442569 and 223467. If the rate expected by you is 4.33% per year of compound interest. Which project is more profitable according to the NPV (Net Present Value)? Question 2 options: b c a darrow_forward
- Understanding the Costs Involved in Mutual Fund Investments Bob is debating purchasing a mutual fund, but he has some questions for his financial advisor, Cho. The following table presents information on four different open-end mutual funds that Bob and Cho are discussing. Use the information in the table to answer the questions that follow. FUND NAV NET CHG YTD % RET MinT p 12.32 -0.04 2.6 TmRE r 15.77 0.06 5.5 PFIN 39.81 0.20 8.0 BRRT 43.21 0.29 9.1 BOB: After some research, I've narrowed it down to these four funds, but can you explain to me the relationship between 12b-1 fees and fund performance? CHO: Generally, funds that charge 12b-1 fees, such as MinT p, do not necessarily outperform funds that do not charge these fees. BOB: What about front-end load fees? For example, suppose BRRT has a front-end load fee of 6%, when do I pay this fee? CHO: If you purchase 100 shares of this fund at the NAV, you will pay a commission of S pay $ in front-end fees. BOB: It sounds like these fees…arrow_forwardAn endowment invests $150,180,000 in WeGrow II, an early-stage venture fund with a 20% incentive fee and a 5% preferred return [hurdle rate]. The fund invests in the following companies (for simplicity, ignore staged financing and management fees; assume instead that all investments occur at the end of their denoted year): Investment (Year Invested) $ 35,030,000 (2) $ 20,030,000 (2) $ 15,030,000 (2) $ 20,030,000 (3) $ 25,030,000 (3) $ 100,030,000 (7) $ 125,030,000 (10) $0 (9) $ 35,030,000 (4) Instead of a 5% preferred rate, assume there is an 8% preferred rate with a 100% catch-up. Required: a. Recalculate the yearly cash flows. b. What is the IRR to the endowment, net of fees? Start-up Name SPE Incorporated NiteID Corporation D-Ton Incorporated IKL Limited H&L Innovations SimLife Technologies Complete this question by entering your answers in the tabs below. Required A Recalculate the yearly cash flows. Note: Negative amounts should be indicated by a minus sign. Year Net Cash Flows 1…arrow_forwardA Private Capital Company is being founded with a capital of 12,000 euros, which is covered by capital contributions from partners A, B, and 5bC. The participation percentages of partners A, B, and C are 45%, 15%, and 40%, respectively. Partner C, for their participation, also contributes a property valued at 13,000 euros. The capital will be deposited into an account maintained by the company at a designated bank. Required: Make the appropriate journal entries.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,

College Accounting, Chapters 1-27
Accounting
ISBN:9781337794756
Author:HEINTZ, James A.
Publisher:Cengage Learning,