Structuring, Negotiating and Managing Partnerships in Property
Julian R. Sterling
Four Excel workbooks. The first is the waterfall of Chapter 9 as a live engine, with
all three appendix structures beside it. The second rebuilds the complete venture of Chapter 23 end
to end — five years, a tenant failure, a refinancing and an exit. The third models the remedies:
dilution, the default loan, the clawback and what removal costs. The fourth is the term sheet checklist,
the major decisions table and the diligence questions as working documents. Each ends with a checks sheet
listing every figure the book prints beside what the workbook computes.
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Everything described below is inside it, with the read-me.
The four workbooks
Chapters 9 and 10 · Appendix C
The waterfall, the promote, and what it costs
Nine cells define the deal and five tiers resolve below them. Set the exit proceeds to 150 and the
promote is 1.54; set them to 320 and it is 54.43. Between those two the venture’s proceeds slightly
more than double and the promote rises thirty-five-fold — the convexity of Chapter 10, easier
to believe once you have made it happen yourself. The catch-up is solved in the cell rather than
asserted, so changing the split from 50/50 to a full catch-up simply produces the right answer. Separate
sheets carry the other two appendix structures, the promote-by-exit-year comparison that shows a
multiple-based waterfall paying 27.64 whether the exit is in year three or year ten, the leverage table
— sixty per cent more promote on thirty-seven per cent less equity — and the investor’s
return computed with the promote and without it, which Chapter 10 says an investment committee wants
and rarely receives. A final sheet is the same engine with the book’s numbers stripped out, for a
deal of your own.
JV_Waterfall_and_Promote.xlsx · XLSX · 35 KB
Chapter 23
The complete venture, end to end
Chapter 23 opens by saying that a reader with a spreadsheet should be able to rebuild the deal
from the chapter alone. This is that spreadsheet: sources and uses at closing, five years of operations,
the capital account rolled forward at 8% on capital plus accrued, the refinancing and the deemed
liquidation that found the promote out of the money at a valuation of 126, the exit waterfall with the
14% hurdle solved in the cell — it needs the year-five receipt of 71.54, and sizing that tier as
“80% of what is left” is where hand-built models go wrong — the lookback, and the
returns by partner. The chapter prints interest and the asset management fee as a single line; the
workbook splits them, and the split reproduces all five printed figures and the 3.60 of total fees. A
downside sheet runs the venture at any exit price and finds the one at which the promote first becomes
payable at all. It is 122.68, and it appears nowhere in the term sheet.
The_Complete_Venture.xlsx · XLSX · 38 KB
Chapters 8, 11 and 19
Failure to fund, the clawback, and what removal costs
Chapter 8 ends by telling you to model the remedy before you sign it. This does that for all four
dilution families at once: a sponsor at 10% that misses a 2.00 call ends at 7.14%, 7.04%, 2.99% or 1.52%
depending on which formula the agreement contains — and two of those four are both described in
term sheets as “dilution at 1.5 times”. Beside each, the promote, unchanged by any of them,
which is why an investor that dilutes without touching the promote has barely moved the sponsor’s
economics. Then the default loan and its accretion, the deferred buyout that turns a 75% price into 56%
of fair value, the worked clawback of Chapter 11 with the tax rate as an editable cell — at
40% the sponsor finishes at 1.52x against the investor’s 1.22x on a deal that produced almost no
profit — and the five removal variants of Chapter 19.
The term sheet checklist and the diligence questions
Appendix B’s sixty-five questions as a working checklist, with a status against each and a
column for who benefits if a question stays open — the column that earns its keep, because a term
sheet leaving more than a handful open will be renegotiated, and renegotiation after signing is where
relationships are spent. Appendix D’s major decisions table with both opening positions and a
column for where you landed. And Appendix E’s twenty-five diligence questions with a column for
how each was received, which is often more informative than the answer.
Of the sixty-three figures the first workbook tests, sixty reproduce exactly and three differ in the
second decimal. They are marked “rounding” rather than quietly folded into
“reproduced”, and the sheet says why: the book rounds an intermediate figure and carries the
rounded number forward, while the workbooks carry full precision and round only for display.
Chapter 9 and Appendix C disagree with each other in the same way. The chapter prints the
catch-up as 31.28 and the appendix as 31.29; the exact value is 31.2885. Tiers four and five inherit a
hundredth each and both tables still total 250.00, because the last tier absorbs it. Nothing turns on any
of it — it is shown because a check that widens its own tolerance until everything passes is not a
check.
Opening the files
The workbooks open in Microsoft Excel, LibreOffice Calc, Google Sheets and Numbers. They use no macros and
no add-ins, so nothing needs to be enabled or trusted. If your spreadsheet asks to update links on
opening, decline — there are none.
The book these files come from
Real Estate Joint Ventures by Julian R. Sterling. The workbooks reproduce the worked examples in the
chapters; the book is where the reasoning behind them is set out. It is not yet on sale —
these files are published ahead of it.
Closing the DealTwo defensible bridges 20.70 million apart, a peg worth 7.00 million, and the six choices that remove 6.60 of a 12.00 earn-out.
CMBS and CRE CLOsWhere the loss actually lands, from appraisal reduction to realised severity, and what the B-piece is really being paid for.
How to Read a Commercial LeaseThe three refinements chapter 19 names and never performs, and the renewal rate below which the mark-to-market is worth nothing.
How to Read a Credit AgreementWhere the default actually comes from, the cure that costs 5.5 times the other, and the capacity nobody adds up.
How to Read a Real Estate Loan AgreementThe cure ratio in closed form, the four-point window in which the cheap cure works, and the cure sized to the wrong threshold.
Office Real EstateA six per cent yield that returns 3.2 per cent once the re-letting cycle is paid for, and the headline-to-net-effective rent arithmetic.
Private Equity Real EstateBoth worked waterfalls to the dollar, the two capital stacks, and the arithmetic of the promote made changeable.
Private Markets PerformanceThirty-one of the thirty-three figures chapter 19 publishes reproduce exactly — and the two that do not are named rather than quietly adopted.
Raising a Real Estate FundThe chapter 17 funnel run on a calendar — when the first close actually lands, and why more travel does not help.
Real Estate FinanceFour people look at one building and reach four numbers; the lender is whole only above 105,109,489, twelve per cent below today’s value rather than forty.
Real Estate Financial ModelingProperty, development and fund models built line by line, and the modelling test worked end to end.
Real Estate Fund ManagementThe waterfall of 6.11, the build-to-core of 8.7 and the proceeds gap, reproduced as live formulas rather than asserted.
REIT Analysis and ValuationFFO of 532.0, AFFO of 381.0, net asset value and dividend safety — every figure a formula you can change.
Retail Real EstateThe occupancy cost of every unit in a centre, the sixteen per cent of the rent roll no tenant can sustain, and the right-size-convert-or-hold decision priced.
Sale and LeasebackA €179.5 million transaction end to end, with rent cover measured on the entity that actually signs the lease.
Self-Storage Real EstateThe cohort engine behind a 590-unit store, and the rate increase on existing customers priced against the move-outs it causes.
The Fund Finance ProfessionalChapter 8 builds the reported-to-eligible NAV bridge; chapter 9 computes every ratio without it. Two points at every state — and what a subscription line does to the IRR.
The Growth Equity InvestorWhat a pro rata cheque really costs, and the band where defending your ownership loses money.
The Private Credit InvestorThe two coverage ratios are not measured on the same thing: the erosion is 47.7 per cent, not the 28.7 the headline implies.
The Private Equity Fund Controller PlaybookThe book defines IRR, DPI, RVPI and TVPI, tells you to update them at the exit, and prints not one value. Computed: a 1.833× deal inside a fund at 0.892 TVPI.
The Venture Capital AssociateWhat defending a position costs, and how many companies a reserve pool actually defends.
Financial Risk ManagementA fund inside every limit that cannot meet a redemption — and the number that decides it is the one with no currency attached.
Business ValuationThree advisers land 26.8 per cent apart on one company, and the whole gap turns out to be 1.96 points of perpetual growth.
Quantitative FinanceThree models agree to a quarter of one per cent about a number that one unobservable input moves a hundred and three times as much.
Asset ManagementFour people quote four returns for one mandate, all correct and 2.7017 points apart — forty-eight times the manager’s net skill.
Alternative InvestmentsA manager reports 13.29 per cent and the endowment earns 6.26 — both correct, and only a third of the advertised advantage arrives.
Credit AnalysisFour defensible EBITDAs on one borrower give leverage from 3.19x to 6.47x — and the add-back argument is fifty times the covenant headroom.
Venture CapitalOne company out of twenty-eight returns 56.7 per cent of the fund, and half the capital goes in after the decision — at half the return.
Machine Learning for FinanceFive people quote the accuracy of one credit model, all five are right, and the number that decides how much money it makes is none of them.
Commercial Real Estate InvestingThe equity earned 8.6647 per cent and the investor received exactly 8.0000 — the preferred return, and nothing above it.
Mergers and AcquisitionsThe board paper says the deal creates 13,436,667 of value. The arithmetic says it destroys 17,530,855. Nobody is lying.
DerivativesThe treasury report says the hedge cost 1,233,698. That is the interest differential, not a cost.
Treasury ManagementFive cash balances for one company, all correct and 145,600,000 apart — and the revolver that is two-thirds of the liquidity leaves at a revenue fall of 8.4127 per cent.
Financial Planning and AnalysisRevenue 3.0190 per cent above budget and operating profit 16.3209 per cent below it, in the same quarter, with every figure correctly stated.
Energy TradingA position report that is 91.7031 per cent hedged and correctly computed, on a book that is short 2,542,000 MWh — and a margin call of 198,400,000 the next morning.
Construction Cost ControlA contract sum of 26,301,102 became a final account of 29,153,363 on the building that was drawn — and 85.8 per cent of what was lost was knowable on the day it was signed.
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