![]() ![]() And then this part would be equal to the $1.0 million in funds required, minus however much we have drawn on elsewhere, which is zero for now, because this is the first item that we’re considering, the developer equity. So here, it would default to this part of the formula, the D107 minus the sum so far, because that would be equal to $900,000. Well, in that case, what’s going to happen here is that our maximum draw remaining, would only be $900,000 there. So let’s hope we get into a scenario where we have $1 million of funds required, and so far we have drawn on $700,000, out of a max draw of $1.8 million of total developer equity (i.e. We are doing it this way, because once again, we need to subtract however much we’ve drawn on, so far. We’re going to anchor the column part of that, the D, and then we’re going to subtract the sum of E107 to E107. Then the other thing we need to look at is our maximum draw, over here, so the D107. So that’s the first thing we need to consider.Īgain, this is basically the funds that we require minus however much we’ve drawn on through other tranches or other types of equity, so far. And I’m going to anchor the row 105 part of F105 cell, right there. But just to make sure this formula is correct I’m going to select this area of F105 to F106. Now in this case it is simply zero, because developer equity is the first one. ![]() row 104 which lists the total funds required), and then we’re going to subtract however much we’ve repaid, so far. So what we’re going to do here is take the minimum between the funds required, which I’m going to anchor, at least the row part of that cell (i.e. It looks a little bit intimidating when you first see it, but it is actually not that difficult to understand. So that’s the basic idea behind the formulas here. We have to look at those, and compare them to how much we actually require, and then what we’ve drawn on so far, in other types of equity or other types of debt. Now there is a problem with that, which is what if we exceed our maximum draw right here? So the other factor we have to look at is how much we have drawn on so far, and what our maximum draw is. So for example, if we’re at the mezzanine line item, we can look at our funds required, and then we can subtract what we’ve drawn on for our developer equity and investor equity, whatever is left, is what we have to draw on for our mezzanine, right here. So for the equity and debt draws here, basically we are going to draw on the equity or the debt in one of two ways.įirst off we can look at the funds required, for the development and operation of this business, of this property really, and then we can subtract however much, we’ve drawn on so far. That’s going to allow the mezzanine investors here to get a higher return, because their debt will be outstanding for a longer time period. And so as a result, we’re going to have to repay other forms of debt first, before we get to the mezzanine. If you think about this accounting-wise, they are going to get a higher return if we end up paying more interest on mezzanine. That, once again is because the mezzanine debt holders are taking the most risk, so they are going to have the highest potential reward. We’re going to start with Term Loan A, then B, then mezzanine. The order of repayment is going to be different. Now we only have approximately $1.8 million of developer equity, so past a certain point, we’re going to have to start drawing on investor equity, and then mezzanine, then the senior notes after that. Ideally, we’d like to use our own funds first the developer equity here, to fund everything that we can. Now to get started with the equity and debt draws remember how this works. So at least this part here at the bottom, for optional debt repayments, is going to be similar to what you’ve seen, before if you’ve been through those models. Because conceptually, the way we set them up, is actually very similar to what you do in an LBO model, when you’re determining the optional debt repayments. And then if we happen to have any extra cash flow available, how much of that we can actually use to repay some of this debt early, which of course is going to help us, the developer or the equity investor in the project, because it’s going to allow us to reduce our interest expense and our capitalized interest on that debt.Īs with much of the rest of this model, if you’ve already been through the LBO models elsewhere in this course, these formulas will seem very familiar to you. In this lesson we’re going to go into our equity and debt draws for this construction project, and you’ll learn how to estimate how much an equity and debt, we’re drawing on each month. Equity, Debt Draws and Optional Repayment Transcript ![]()
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