Key Takeaways
- Value-add underwriting models the J-curve: cash flow dips during renovation before rising above original levels.
- Distressed properties require ground-up underwriting from market data, not reliance on unreliable historical financials.
- Syndication waterfalls add capital structure complexity with preferred returns, splits, and multi-tier distributions.
- Advanced scenarios demand wider margins of safety (20-30% IRR targets) to compensate for execution risk.
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Test Your Knowledge
1.What distinguishes value-add underwriting from core acquisition underwriting?
2.Why do syndication deals require wider return targets than direct acquisitions?
3.What is a preferred return in a syndication waterfall?