Methodology

How CRE Build calculates the figures it shows. Every number in the product comes from one calculation engine; nothing is computed in the interface.

Cash flow and IRR

The model runs monthly from the first month of the analysis to exit. Equity draws, operating cash flow, refinancing and the sale each land in the month they happen. Levered IRR is solved on the monthly cash flow to equity and annualized; the equity multiple is total distributions over total contributions, and peak equity is the largest cumulative draw on the same series, with the month it occurs.

Loan sizing

A permanent loan is the smallest of every constraint it states: loan-to-cost, loan-to-value on stabilized net operating income at the exit cap, minimum debt service coverage on the amortizing constant, minimum debt yield, and any stated amount. The binding constraint is always named, and a change of binding constraint is reported as an event. Construction financing, capitalized interest and fees are solved together with total cost as a fixed point, so interest that is funded by the loan is inside the cost it is sized on.

The waterfall

Distributions cascade through the tiers of the agreement in the order stated, on one set of capital accounts per partner: return of capital, preferred return accrued on unreturned capital, and promote tiers that fill until the limited partner clears each hurdle. Hurdles are measured as IRR, or as a multiple, or both. Sponsor fees are reported separately from returns.

Real estate taxes and reassessment

Taxes during construction are assessed on land and physical improvements as drawn. At stabilization the property is reassessed: millage times the assessment ratio times the value the building carries, which is net operating income before taxes over the jurisdiction’s reassessment cap rate. Where the jurisdiction reassesses on sale instead, the alternate method keeps taxes on the basis for the hold.

A share gives its recipient a private copy carrying the sections the sender chose. A withheld section is absent from that copy rather than greyed out: its assumptions never leave our servers, and every figure it would state is removed from the result before the copy is built. That holds for what we send and for every row the recipient’s own session can read. None of that decision is made in the recipient’s browser.

What a share controls is therefore what the model states. It does not control what arithmetic allows, and on a lender share the difference is worth setting out in full.

A lender is shown the operating statement, the debt schedule and the budget, because those are what they are lending against, and a strip of coverage, debt yield, loan-to-cost, loan-to-value and loan size. Debt yield is net operating income over the loan; loan-to-value is the loan over value. Their product is net operating income over value, which is the exit cap rate exactly. The twelve months of net operating income after the exit travel with the operating statement, because that is the year the sale is valued on, and the payoff is the loan balance in the exit month. So a recipient can work out the sale price, and from the operating and debt series they can rebuild the cash flow to equity month by month.

What the model does not give them is the sender’s cost of sale, which is an exit assumption. It is worth roughly a third of a point of levered return for each point they are out — on the public Skyline model, 32 basis points per point — so a recipient assuming the market convention lands within a few basis points of the sponsor’s own figure. Peak equity they recover exactly either way, because it is reached during construction, before the sale.

The equity is what stays out of reach. The waterfall and the promote are not merely withheld from a lender’s copy, they are unknowable from it: tiers, hurdles and splits touch nothing a lender is shown, so two deals that divide the same profit very differently produce an identical copy. The exception is who funds the equity: the limited and general partners’ contributions are stated on every share, and their ratio is the split between them. That is deliberate — a lender is entitled to know who stands behind the equity — and it does not depend on which sections you show.

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