Modelling Real Estate acquisition as part of a deal

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by a searcher from The University of North Carolina at Chapel Hill - Kenan-Flagler Business School
in Toronto, ON, Canada

4yrs ago

Modelling Real Estate acquisition as part of a deal

Dear community,

For the first time I'm considering acquiring the real estate where my target operates as part of a deal. Being new to real estate modelling, I was wondering about any useful tips and best practices you might be able to share? I'm modeling the following:

- Purchase price
- Mortgage payments (Principal & Interest)
- Building depreciation which would increase EBITDA of the business and reduce taxes (one of the pros I see)
- Appreciation of the building during the ownership period using historical trends (it is is prime urban location)
- Value of the building at exit
- Other costs like maintenance and insurance are already part of the business P&L

Am I missing something?

Thank you!

1 Like

218 Views

reply by a lender 3yrs ago
from California State University, Sacramento in Seattle, WA, USA

^redacted‌ great points. And thanks for the shout out.

I’ll also add that when real estate is included we don’t want the extra collateral and longer term to mask the underlying acquisition metrics. Make sure the underlying business acquisition dynamics make sense and the extra term isn’t allowing you to acquire a higher than justified price for the actual business. The business acquisition should make sense all on its own.

Also think about what you could do with the extra cash required for the real estate acquisition. Would that capital be better utilized to transition the company and or grow it.

reply by a professional 1yr ago
from University of Dayton in New York, NY, USA

You should consider a sale leaseback for acquisition financing. Sale leaseback would allow you to pull out the capital from the real estate and add it to your capital stack. A lot of times there is spread between the sale leaseback and seller expectations so it could be quite beneficial to your process. I developed courses on this strategy and can underwrite these deals as well!