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Real Estate Financial Modeling’s
Project-Specific Financial Modeling for Partnership-Based Investments

Friday, September 24th – Saturday, September 25th, 2010

The Westin Bonaventure Hotel & Suites


404 South Figueroa Street
Los Angeles, CA 90071

Instruction by:

REFM Principal and Instructor Bruce Kirsch


Adjunct Faculty at Georgetown University

REFM Instructor Ehud Mouchly


Adjunct Professor at University of Southern California

Lunch Keynote Speakers:

Victor Svilik, Managing Principal


QVT Mount Auburn Capital LP, Los Angeles

Samuel K. Freshman, Chairman, President, and Director


Standard Management, Los Angeles
Overview and Format

This is a 2-day class that teaches intermediate and advanced Excel-based financial modeling
techniques specific to a variety of real estate property and transaction types. This class
addresses the financial structuring of partnerships and partitioning of cash flows for profit
sharing. Participation is strictly limited to ensure a low student-to-instructor ratio.
Participants will follow along in Excel on their laptops and perform skills exercises.

Schedule Summary

Friday, September 24th Registration from 7:00 to 7:30 AM; Reception from 6:00 to 7:30 PM

7:30 AM to 8:00 AM Screening of REFM’s Development Modeling Basics video

8:00 AM to 12:00 PM Mixed-Use Apartment Building Development Financial


Modeling (see pp. 4-5)

12:15 PM to 1:15 PM Institutional Transaction Partnership Structures: Victor Svilik,


Managing Principal, QVT Mount Auburn Capital LP (see p. 6)

1:30 PM to 5:30 PM Mixed-Use For-Sale Condominium Building


(break at 3:00 PM) Development/For-Sale Housing Subdivision Development
Financial Modeling (see pp. 7-9)

Saturday, September 25th

8:00 AM to 9:00 AM Advanced Excel Formatting and Error-Protection Techniques,


and Leveraging Excel’s What-If and Solver Tools (see p. 9)

9:00 AM to 11:15 AM Apartment Building Acquisition and Individual Unit


Renovation Financial Modeling (see p. 10)

11:15 AM to 12:15 PM Distressed Note and Project Workout Modeling (see p. 10)

12:30 PM to 1:15 PM Advantages, Structuring and Recent Trends in Syndication


Samuel Freshman, Chairman, Standard Management (see p.11)

1:30 PM to 4:00 PM Modeling Joint Venture and Partnership Profit Sharing and
(break at 3:00 PM) Partitioned Returns (see p. 12)

4:00 PM to 5:00 PM Excel-based Customization of a Commercial/Retail Cash Flow


Output from Argus (see p. 13)
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Cost:

In-Person Attendance: $695 Standard / $275 Academic


Virtual Attendance: $525 Standard / $175 Academic

Register Here:
http://www.realestatefinancialmodeling.com/index.php?main_page=index&cPath=2

Included in Course Fee

• Advance Preparatory Materials (A $450 Value):


o REFM’s Excel for Real Estate Bootcamp video and Excel file
o REFM’s Real Estate Finance Bootcamp video and Excel file
• Lunch and afternoon snacks on both days, and Friday Networking Wine & Cheese
• Sophisticated, reusable Excel-based models specific to the class sessions

Note: All purchases are final due to limited class size.

Who Should Attend

Real estate professionals with a specific transaction that they would like to model,
professionals who want to improve or want to become experts in Excel-based real estate
transaction financial modeling, advanced students, and CFA Institute members seeking
Continuing Education content and credit hours.

Participants Include

Real estate developers, builders, private equity real estate investors, property owners,
investment bankers, investment and hedge fund managers, asset managers, real estate
company employees, property managers, engineers, architects, landscape architects, land use
and transaction attorneys, accountants, construction executives and project managers,
consultants, public agency officials, government and economic development officials, non-
profit organization employees, lenders, mortgage brokers, appraisers, residential realtors and
marketers, commercial leasing and investment sales brokers, university faculty,
undergraduate and graduate students.

What You Must Bring

Your laptop with Excel 2003 or 2007/2010 installed (Macs are OK) and your power
cord/mouse. Note that Excel 2007 will be used in the presentation.

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Detailed Schedule

Friday, September 24th – 8:00 AM to 12:00 PM

Excel-based Mixed-Use Apartment/Multi-Family Building Development


Financial Modeling Training

What You Will Learn

A mastery of technical pro-forma (financial projection) modeling skills for the ground-up
development of a mixed-use rental apartment building, including distressed and foreclosed
development sites.

Site and Building Information and Construction Type


• Calculation of allowable density using FAR multiple and site area
• Construction type determination based on local costs and achievable rents
• Calculation of allowable building footprint using lot coverage ratio and site area
• Calculation of building height using slab-to-slab height and story count
• Calculation of apartment gross square footage given an assumed ground-floor retail
square footage
• Calculation of apartment rentable square footage given an efficiency factor
• Calculation of parking requirements and required parking gross square footage given
usable square footage loss factor

Apartment Unit and Mix Details


• Calculation of average rent/month given a monthly rent per square foot and average
unit size
• Calculation of total rentable square feet of each unit type and total number of each
unit type given average unit sizes, and percentage of total rentable square footage that
each unit type comprises
• Calculation of monthly revenues and share of revenues by unit type

Project Timing Elements


• Understanding of the relationship between the durations of the three phases of
development (Pre-Construction, Construction and Post-Construction), and the
timing and dependencies of the major milestones within each of those phases

Capital Structure
• Calculation of sources of funds supplied by two equity sources, a mezzanine lender,
and a senior interim / construction lender

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• Calculation of percentage of total development cost that each of the two equity
investments comprise

Uses of Funds
• Quantification and timing of:
o Land and Acquisition Costs
o Hard Costs (based off of a bell-shaped distribution curve) and Tenant
Improvement Costs
o Soft Costs
o Fixtures, Furnishings and Equipment Costs
o Financing Costs, including Capitalized Interest Expense, and Operating
Deficit
Sources of Funds
• Quantification and timing and interrelationship of Draws, Interest and Repayment, as
applicable, of:
o Developer Sponsor Equity
o Developer Partner Equity
o Third Party Investor Equity
o Mezzanine Financing
o Senior Financing

Cash Flows and Returns


• Income and Expense Assumptions
• Apartment Unit Lease-Up Schedule
• Calculation of Gross Rental Income, Effective Gross Revenue and Net Revenue
• Calculation of Total Operating Expenses and Real Estate Taxes
• Calculation of Net Operating Income (NOI)
• Calculation of Current Annual Yield
• Calculation and Timing of Capital Expenditures
• Calculation and Timing of Non-Capitalized Interest Expense
• Timing of Financing Cash Flows
• Calculation of Project Levered Cash Flow
• Calculation of Multiple on Equity
• Calculation of Internal Rate of Return (IRR) on Equity
• Calculation of Profit Margin

Capitalized Valuation
• Calculation of “Current” Annual Net Operating Income
• Calculation of Future Stabilized Net Operating Income
• Calculation of Future Net Sale Amount.
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Friday, September 24th – 12:15 PM to 1:15 PM

Lunch Presentation:
Current Trends in Institutional Transaction Partnership Structures
and Distressed Investing

Victor Svilik, Managing Principal, QVT Mount Auburn Capital LP, Los Angeles

Mr. Svilik will address the following topics over lunch:

• Traditional Sponsor/Investor Partnership structures


o Typical proportions of equity invested
o Decision-making processes
 Conflict resolution mechanisms
o Control issues
o Liability for funding operating deficits
o How the IRR is defined and calculated
o Catch-up/Clawback mechanisms
• Recent Trends that vary from Traditional structures.

Biography of Victor Svilik

Formed in January 2008, QVT Mount Auburn Capital LP invests in real estate assets and
loans throughout the United States. As a Founder and Managing Principal of the
opportunity fund, Mr. Svilik is responsible for the fund’s acquisitions and asset management.
Since inception, QVT MAC has purchased distressed real estate loans from financial
institutions as well as real property from owners. A second generation builder, prior to his
work as a fund manager, Mr. Svilik was also a developer, builder and investor in multifamily
and mixed-use projects. Mr. Svilik graduated from Stanford University and holds both a JD
from Harvard Law School and an MBA from Harvard Business School. In addition to being
admitted to the California Bar, Mr. Svilik is also a licensed general contractor in California.
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Friday, September 24th – 1:30 PM to 6:00 PM

Mixed-Use For-Sale Condominium Building Development/For-Sale Housing


Subdivision Development Financial Modeling

What You Will Learn

A mastery of the skills needed to successfully model for-sale mixed-use condominium


building and for-sale housing subdivision development transactions, including distressed and
foreclosed development sites.

Site and Building Information and Construction Type


Condominium-specific
• Calculation of allowable density using FAR multiple/units and site area
• Construction type determination based on local costs and achievable sales prices PSF
• Calculation of allowable building footprint using lot coverage ratio and site area
• Calculation of building height using slab-to-slab height and story count
• Calculation of residential use gross square footage given an assumed ground-floor
retail square footage
• Calculation of apartment rentable square footage given an efficiency factor
• Calculation of parking requirements and required parking gross square footage given
usable square footage loss factor

Housing subdivision-specific
• Calculation of total number of houses allowed based on units/acre and total acreage
• Calculation of allowable building footprint lot coverage

Mix Details
How to determine a suitable project unit/house plan mix
Condominium-specific
• Calculation of average unit price per square foot given an average unit price
• Calculation of total salable square feet of each unit type and total number of each unit
type given average unit sizes
• Calculation of percentage of total rentable square footage that each unit type
comprises
• Calculation of total revenues and share of revenues by unit type

Housing subdivision-specific
• Calculation of average plan price per square foot given an average price
• Calculation of total homes of each plan type
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• Calculation of percentage of total homes that each unit type comprises
• Calculation of total revenues and share of revenues by plan type

Project Timing Elements


• Understanding of the relationship between the durations of the three phases of
development (Pre-Construction, Construction and Post-Construction), and the
timing and dependencies of the major milestones within each of those phases
• Sales Velocity assumptions and dependencies, including Pre-Sales and Phases

Capital Structure
• Calculation of sources of funds supplied by each of two equity sources, (for
condominiums) a land loan, mezzanine loan, and a senior construction loan, or (for
housing subdivisions) an acquisition, development and construction loan
• Calculation of percentage of total development cost that each of the two equity
investments comprise

Uses of Funds
• Quantification and timing of:
o Land and Acquisition Costs based off of residual land valuation
o Hard Costs, and (for condominiums) retail component Tenant Improvement
Costs
o Soft Costs
o Fixtures, Furnishings and Equipment Costs
o Financing Costs, including Operating Deficit

Sources of Funds
• Quantification/timing/interrelationship of Draws, Interest and Repayment, as
applicable:
o Developer Sponsor Equity and Third Party Investor Equity
o Land Loan Financing
o Mezzanine Debt Financing
o Senior Construction Debt Financing

Pre-Sales, Market Sales, Closings, Cash Flows and Returns


Condominium-specific
• Condominium Units/Parking Spaces/Storage Units
• Condominium Maintenance Income
• Retail Component Sale Net Revenue

Both Condominiums and Housing Subdivisions


• Calculation of Net Potential Revenue
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• Calculation of Total Operating Expenses and Real Estate Taxes
• Calculation and Timing of Non-Capitalized Interest Expense
• Timing of Financing Cash Flows
• Calculation of Project Levered Cash Flow
• Calculation of Multiple on Equity
• Calculation of Internal Rate of Return (IRR) on Equity
• Calculation of Pre-Tax Profit Margin.

Saturday, September 25th – 8:00 AM to 9:00 AM

Advanced Excel Formatting and Error-Protection Techniques, and


Leveraging Excel’s What-If Analysis and Solver Tools

What You Will Learn

How to produce better-formatted, more intuitive, and more human error-protected


spreadsheets utilizing the following advanced Excel features and functions:

• Conditional Formatting
• Named Cells and Ranges
• Data Validation.

How to leverage Excel’s “What-If” and Solver tools for more advanced, efficient transaction
analysis and partnership structuring. The functions addressed will include:

• Goal Seek
• Data Tables (single- and double-variable)
• Scenario Manager
• Solver.

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Saturday, September 25th – 9:00 AM to 11:15 AM

Apartment Building Acquisition and Individual Unit Renovation Modeling Training

What You Will Learn

A mastery of Excel-based technical pro-forma (financial projection) modeling skills for the
acquisition and individual unit renovations (with continued operation) of a rental apartment
building with ground-floor retail. The following principles and skills that will be taught
apply equally to duplexes and 1,000-unit complexes:

• Integration of historical property data and existing rent roll into your pro-forma
• Modeling of future lease expirations and renewals
• Modeling of the unit renovation program funded out of operating cash flow
• Modeling of operating expense savings gained from the renovation/greening of
apartment units
• Modeling of acquisition loan financing, residual equity requirement, and permanent
take-out loan/refinancing
o Constructing amortization tables and using the VLOOKUP function
efficiently
• Modeling of property disposition

A Case Study with a pre-populated rent roll will be used to demonstrate the capabilities of
the model.

Saturday, September 25th – 11:15 AM to 12:15 PM

Distressed Note and Project Workout Modeling

What You Will Learn

• How to model and analyze the acquisition and monetization of distressed notes with
capital partners.

• How to approach, modify and customize financial models for the specifics related to
complex bankruptcy and foreclosure workout situations.

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Saturday, September 25th – 12:30 PM to 1:15 PM

Lunch Presentation: Advantages, Structuring and Recent Trends in Syndication

Samuel K. Freshman
Chairman, President, and Director
Standard Management, Los Angeles

Mr. Freshman, author of Principles of Real Estate Syndication, will address the following
topics over lunch:

• What is a Real Estate Syndicate?


• The Role of the Syndicator
• Selecting and Structuring the Entity
• How to Market Syndicate Shares
• The New Syndication Strategy.

Biography of Samuel K. Freshman

Mr. Freshman founded Standard in 1961. Since Standard's formation, Mr. Freshman's
responsibilities have included Standard's investment strategy, business development and
negotiations. Mr. Freshman is a principal of all entities established by Standard and is
responsible for their oversight. During his career, Mr. Freshman has been responsible for
the acquisition, development and management of approximately $500 million of real
property in 11 states and more than 25 cities. Prior to his decision in 1983 to devote the
majority of his time to Standard, Mr. Freshman founded and was the managing partner of
the law firm of Freshman, Marantz, Orlanski, Cooper & Klein, now the Century City office
of K & L Gates. As a lawyer, Mr. Freshman specialized in real estate matters and real estate
syndication. Prior to forming Freshman, Marantz, Orlanski, Cooper & Klein, Mr. Freshman
was General Counsel of Jacob Sterns & Sons, a real estate investment company. Mr.
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Freshman is an acknowledged expert on real estate investment and has served as Adjunct
Professor of Real Estate at the University of Southern California Graduate School of
Business, and as an expert witness in over 50 cases. Mr. Freshman has also been the author
of many articles on real estate syndication. Mr. Freshman received his Bachelor of Arts in
pre-legal curriculum and his law degree from Stanford University.

Saturday, September 25th – 1:30 PM to 4:00 PM

Modeling Joint Venture and Partnership Profit Sharing and Partitioned Returns

Joint venture partnerships are becoming increasingly complex and their proper structuring
and modeling increasingly critical as equity capital requirements have grown given today’s
more conservative lending environment.

What You Will Learn

• Reasons to seek a Joint Venture partner


• Typical legal structuring
• Roles played by partners
• Types of risk being assumed
• Philosophy behind the disproportionate partitioning of cash flows
• “Optimal” structuring through Sponsor alignment
• Preferred return and Promote structures
• Mechanics of partitioning cash flows
• Transaction Waterfall characteristics
• Look-back IRR mechanism
• Claw-back IRR mechanism
• How to structure partnerships based on current trends
• How to build the line items for a 5-Tier Internal Rate of Return Waterfall.

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Saturday, September 25th – 4:00 PM to 5:00 PM

Excel-based Customization of a Commercial/Retail Cash Flow Output from Argus

While ARGUSTM is able to generate future cash flow projections based on market factors
and tenant rollover assumptions, discounted cash flow valuations and sensitivity analyses are
more easily controlled with Excel. Additionally, a customized presentation of the property
valuation and investment returns is more appropriate to individual deals and partnerships.

What You Will Learn

• How to quickly build a live Excel-based pro-forma valuation model that links directly
to a 11-year cash flow Excel-based output from Argus
• How to construct data table-based Sensitivity Analysis using discount rate and
terminal capitalization rate as variables
• How to construct a leveraged cash flow analysis including both a Senior Loan and a
Mezzanine loan
• How to construct and run data table-based Sensitivity Analyses on Internal Rate of
Return by varying:
o Purchase Price vs. Terminal Capitalization Rate
o Purchase Price vs. Loan-to-Cost
o Loan-to-Cost vs. Interest Rate.

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Instructor Biographies

Bruce Kirsch

Mr. Kirsch began his real estate career at CB Richard Ellis, where he marketed high-rise New
York City office buildings for re-development in the top-producing Midtown Manhattan
Investment Properties Institutional Group. After CBRE, Kirsch was recruited to be the
Director of Acquisitions at Washington, DC-based Metropolis Development Company, a
cutting edge local developer of urban infill design-forward residential lofts. While at
Metropolis, Kirsch sourced, analyzed and negotiated the acquisition of three privately-owned
District of Columbia sites to support the development of 500,000 SF of mixed-use
condominium, multi-family and retail product.

After leaving Metropolis, Kirsch engaged in his own urban and suburban condominium and
single family detached housing ventures. Kirsch was then selected as one of the two
executives to run New York City-based developer and consultant The Clarett Group's
Washington, DC business.

While at The Clarett Group, named one of New York City’s most important real estate
development companies by Crain's New York Business, Kirsch was responsible for
analyzing and making urban and suburban site acquisition recommendations for
development of trophy-level office, condominium, multi-family and age-restricted multi-
family properties in the greater Washington metropolitan area. In addition, Kirsch had
significant day to day project management responsibilities for the entitlement, financing and
marketing of the company’s existing Washington, DC metropolitan area development
portfolio. Kirsch was additionally involved in the marketing and implementation of The
Clarett Group’s consulting business.

Mr. Kirsch holds an MBA in Real Estate from The Wharton School of the University of
Pennsylvania, where he was awarded the Benjamin Franklin Kahn/Washington Real Estate

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Investment Trust Award for academic excellence. Kirsch started teaching on real estate
topics while at Wharton as the Wharton MBA Real Estate Club’s Co-Vice President of
Education. Kirsch was also a member of the Wharton team that won 1st Place at the
National Real Estate Finance Challenge case competition.

Prior to Wharton, Bruce performed quantitative equity research on the technology sector at
The Capital Group Companies, the manager of the American Funds, the largest family of
mutual funds in the United States.

Mr. Kirsch is a Faculty member in real estate at the Georgetown University School of
Continuing Studies. Mr. Kirsch graduated with a BA in Communication from Stanford
University, and he is a member of the Urban Land Institute.

Ehud Mouchly

Mr. Mouchly is an adjunct professor at the University of Southern California’s (USC) School
of Policy, Planning, and Development (SPPD) where he teaches Advanced Real Estate and
Financial Modeling in the Master of Real Estate Development (MRED) program.

Mr. Mouchly is also the owner of READI, LLC (Real Estate Asset Development &
Investments). He has more than 30 years of experience in development, redevelopment and
financing of sustainable infill projects, mixed-use development (MXD) projects, master
planned communities (MPC), workforce housing communities and employer-assisted
housing projects. He was previously Vice President and General Manager of UniDev, LLC’s
West Coast Office, focusing on the design, development, financing, and management of
workforce housing communities. Earlier, Mouchly worked with SunCal Companies as a
member of the master planned communities’ acquisition, entitlements and start-up team;
General Manager of Anaverde (formerly City Ranch), KB-Home’s 2,000-acre, 5,000-unit in
Palmdale, CA; Principal and Co-Developer of a 160-acre commercial MXD in San Joaquin
County, CA; managing director in the Real Estate Group of Price Waterhouse; founder and

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president of a national real estate consulting company; developer/builder of residential and
retirement communities.

Mouchly has served as chairman and vice chairman of several flights of the Community
Development Council (CDC) of the ULI, vice chairman of the ULI Program Committee, a
ULI council counselor, and member of the ULI-LA District Council Executive Committee.
He is a member of the California Redevelopment Association (CRA), the National
Association of Home Builders (NAHB), the Counselors of Real Estate (CRE), former fellow
of the Royal Institution of Chartered Surveyors (RICS), and member of Lambda Alpha
International. He has served as an expert witness in U.S. district and state superior courts.
He is an occasional author and frequent speaker on real estate matters in the U.S. and
overseas. Mouchly holds master’s degree and certification as Ph.D. candidate (“all but
dissertation”) in economics and Middle East studies from Columbia University.

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Register Here:

http://www.realestatefinancialmodeling.com/index.php?main_page=index&cPath=2

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