Worksheet The Impact of Sponsor Promotes (Please show all work)

Case Problem Belmont Real Estate Fund III

Belmont Real Estate Fund III (BRE III) is an opportunistic real estate fund that invests in all five real estate sectors Industrial, Office, Apartments, Retail and Hotels. The Fund invested $500 million in equity. BRE III was projected to return a 20%+ IRR and a 6.0x+ equity multiple. The fund terms are as follows:

European Waterfall

LP Preferred Return of 10%

Catch up is 50/50

Carried Interest split is 80/20

Management Fees are outside the commitment (they do not need to be paid back before carried interest is paid)

The Fund was a 10-year fund and was fully liquidated after Year-10 for total proceeds of $3,100 million.

Question 1 After Year-10, calculate the funds value based on the hurdle (10%) that must be achieved before the GP participates in any carried interest. (2 pts).

Question 2 At the Catch-up of 50/50, both the GP and LP get 50% of the following amount, which equals what? (4 pts)

Question 3 Now that the 80/20 split of profits has been achieved what are the remaining profits to besplit 80/20? What is the LP portion and what is the GP portion? (6 pts)

Question 4 What is annualized gross return of the BRE II!? (2 pts)

Question 5. What are the total dollar profits and annualized return for the LPs? (4 pts)

Question 6. What is the impact of the sponsor promote on the gross return of BRE III. What is the net return of BRE III? (2 pts)

Bonus Question What is the gross equity multiple and the net equity multiple for BRE III? (2pts)