WILDCAT CAPITAL INVESTORS: REAL ESTATE PRIVATE EQUITY Case Solution
Similarly, if the LTV ratio changes from 65% to 60% with interest rate of 7%, then the returns generated by the limited partners would be 108% and for Wildcat it would be 341% compared to the property level returns of 14%. Finally, if the investor changes to the deal structure as demanded by the equity partners due to tight economic climate, then the returns generated by the limited partners would be 126% and for Wildcat it would be 232% compared to the property level returns of 14%.
Overall, with the changes to the most risky benchmark assumptions, it could be seen that although the returns would fluctuate if certain market conditions such as the LTV ratio and interest rate changes or even the deal structure changes but still a good return on investment would be earned by the limited partners and Wildcat.
Finally, the fair price of the property has been computed as shown in the excel spreadsheet. The fair price on the basis of the DCF method would be approximately $ 12 million and on the basis of the comparables approach it would be $ 24.8 million as compared to the purchase price of $ 10.4 million. This shows that the property is valuable and it would generate significant returns.
If I would be approached by Wildcat for investing in the equity for acquiring the office building, then in addition to the financial projections of the property, I would seek its valuation for additional financial information regarding the most significant variables such as cap rates, vacancy rates and occupancy rates. I would perform my independent financial analysis and then make a final decision for equity investment……………
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