Leveraged Breakdowns

Retail Real Estate Investment Case Study Challenge

We often receive requests for real estate investment case studies. Students want to prepare for job interviews as well as practice their skills for personal growth. In either event, case studies are a fantastic way to better your skills and launch into a career in real estate private equity.

This case study will simulate a live REPE interview situation, providing the information you will need to build a quick LBO model. There are more case studies and courses available from Leveraged Breakdowns (here and here), and you can post your results and discuss this case study with others on the forums.

The Overview

You receive an email from your manager with an offering for a grocery-anchored shopping center in Dallas. Your manager states that this property may be a fit for the firm’s Core-Plus fund, which has been struggling to find suitable investments. You are to build an investment model based on the offering and report back in 24 hours with your analysis.

The Details

  • Tenant 1: HEB grocery, 80,000 sf, $13/sf NNN for 12 years; four options to extend for five years with $0.50 bumps each option term
  • Tenant 2: FedEx/Kinkos, 2,500 sf, $24/sf NNN for seven years; two options to extend for five years with 10% bumps each option term
  • Tenant 3: Dorothy & Toto’s restaurant, 4,000 sf, $20/sf NNN for five years; one option to extend for five years with a 12% increase
  • Tenant 4: Anytime Fitness, 4,500 sf, $18.50/sf NNN for seven years, 7.5% increase beginning year three; two five-year options to renew with 7.5% increases
  • Operating Expenses (total): $3.95/sf, assume 2% annual increase
  • Asking Price: $14.95 million
  • Target Leverage: 50%
  • Debt Terms: 5.00% fixed for 10 years, 20 year amortization
  • Hold Period: 10 years
  • Exit Cap: 6.50%

The Analysis

Here are a list of questions for you to answer (post your answers on our Forum!)

  1. What is the unlevered and levered IRR of the investment?
  2. What is the multiple on invested equity?
  3. What risks do you see in this opportunity?
  4. What questions would you ask of the listing agent?
  5. If you were to build a sensitivity analysis, which variables would you test?

Reviewing case studies is a great way to prepare yourself for a high-pressure and competitive interview process if you are considering a career in real estate private equity. Don’t fall into the trap of thinking you only need to get the right answer, though. You also need to think about what clarifying questions you would ask, and how you would present your findings. In some situations there may be gaps in the information included in the real estate investment case study. This is intended to tease out the types of questions you would ask, or how you incorporate, document, and report your assumptions.

Getting the right answer is imperative, but showing the interviewer how you think is just as important. Visit Leveraged Breakdowns for more case studies, courses, blog articles, and practical advice on how to conquer your real estate private equity career!

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