1. Do you know a waterfall structure?

A waterfall is a structure that provides incentive to the GP or developer. The GP will get some percentage of cash flows up to a certain IRR hurdle rate, and then will get an increasing percentage of cash flows once the IRR hits additional hurdle rates.

2. Explain me what is your favorite property type and why?

Here is your opportunity to discuss your passion. Maybe you love hotels because of the complex structure with the operating partner and the cyclical nature of the asset class, which might present opportunities that other food groups do not. Or maybe you love multi-family because you are most familiar with it and you like the growth prospects with more people renting and the shift to urban areas.

3. Explain me what is an equity multiple?

An equity multiple is another metric used to analyze investor returns. It is calculated as the sum of total cash distributed to the investor including appreciation from sale over the holding period divided by the initial investment.

4. Tell me how would you value the Willis Tower?

Shortly, just mention a few approaches. Run a DCF to take into account future cash flows, use comps in the market, and look at what it would cost to replace the building.

5. Tell me what is an IRR?

The IRR is the discount that makes your NPV zero. It is metric used to analyze investor returns and is often associated with IRR hurdle rates and promotes.

6. Please explain what is the impact of depreciation on the project IRR?

No impact. Project IRR is calculated on the basis of cash flow and depreciation is a non-cash flow item.

7. Explain me where would you put your money in Real Estate?

Have a succinct answer for this. Know who you are interviewing with. If the company invests in value-add deals in Oklahoma do not say that you would put your money in a REIT like Vornado. Try to be clear which part of the capital stack you are investing in. Are you putting money into Public debt, private equity, public equity, or private debt? This structured response will be clear to the interviewer and show a sound thought process. Try to mention diversification!

8. Tell us do you know how to structure a joint venture?

Basically what a JV does is provide a co-investment by multiple parties to fund a real estate deal. This could be a general partnership, limited partnership, or an LLC. Ultimately it is simply a way to link money (capital) providers and people who specialize in real estate services. What a JV tries to accomplish is utilize this link to provide all parties with above average risk adjusted returns and also assess structuring details with regards to a if the deal goes bad.

9. Explain what do you think is the most important statement of a company?

This is more of a debt side question you would get when looking at tenant quality. You want to look at the cash flow statement to understand how the company makes money and generates cash flow. It will also allow you to analyze growth prospects and market share. Of course the Income Statement (Revenue and Expenses) and the Balance Sheet are very important also. When it comes to analyzing key ratios and debt structure look at the balance sheet. But the real estate industry is about Cash and having the ability to generate cash is king.

10. How to calculate the cost of equity?

Cost of equity is the return a firm theoretically pays to its equity investors. Capital Asset Pricing Model (CAPM) is the most commonly used method of determining the appropriate cost of equity. According to CAPM:

Cost of Equity, Re = Rf + b (Rm-Rf), where;

Re = Cost of Equity
Rf = Risk-free rate of return
Rm = The historical return of the stock market / equity market
b = is a number describing the correlated volatility of an asset in relation to the volatility of the benchmark that said asset is being compared to.

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