Commercial Acquisition: Exit Assumptions


The purpose of this post is to outline the key functions of the Exit Assumptions in CREModels Commercial Acquisition models, as well as cover where to input values and how output values within the Exit Assumptions are calculated.

Overview of Exit Assumptions

Exit Assumptions are used to project the proceeds from the sale of the property at the end of the analysis period, as well as the overall profit of the project. There are four inputs when entering information into Exit Assumptions: Reversion Month, Reversion Cap Rate, Selling Costs, and Gross Sales Price Override.


Reversion Month

The first input of the Exit Assumptions table is the Reversion Month. The Reversion Month will be the month in which the user assumes the property will be sold. Beneath this input, the model will display the Forward 12 NOI (the sum of NOI for the 12 months following the Reversion Month).

Reversion Cap Rate

The Reversion Cap Rate is the cap rate to be used to calculate the Gross Sales Price upon the Reversion Month. The Reversion Cap Rate may also be referred to as the Exit Cap. The Gross Sales Price will be equal to the Sale NOI Forward 12 divided by the Reversion Cap Rate.

Selling Costs

The user may enter Selling Costs as a percentage of the estimated sale price (Gross Sales Price @ Exit Yr). The model will use the input % to calculate the Cost of Sale by multiplying the Selling Costs percentage by the Gross Sales Price @ Exit Yr. For example:


Gross Sales Price Override

As an alternative to entering a Reversion Cap Rate, the user may enter an expected sale price for the property in the Gross Sales Price Override input. If a value is entered here, then the model will use this input in place of the calculated Gross Sales Price @ Exit Yr value.


Net Sales Proceeds : The Net Sales Proceeds is equal to proceeds from the sale of the property after subtraction of the Cost of Sale. Using the above example, the calculation is as follows:


Net Proceeds to Equity: The Net Proceeds to Equity is the total proceeds from the sale of the property that will be paid to investors after all debt is paid off. The model calculates Net Proceeds to Equity by subtracting any Debt Payoff from the Net Sales Proceeds. The Debt Payoff will be the equal to the Acquisition Loan balance which is remaining after the final principal payment is made in the Reversion Month. In our example:


PSF : The model shows the previous outputs as both a total value and a PSF value. In order to obtain the PSF values, the model divides the total values by the Net SF of the property (entered by the user in the General Info table in the top left corner of the INPUTS sheet). For example, this property has a total net square footage of 103,835 SF. If we divide the Gross Sales Price @ Exit Yr by the total net square footage of the property, then we will have the Gross Sales Price on a per square foot basis: