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

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)

-GP is the sponsor / developer/ manager.

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. Do not include annual cash flows.

Question 2. At the Catch-up of 50/50, both the GP and LP get 50% of the residual. What is that amount? Again, there is no income, the calculation is purely on the residual.

Question 3. Now that the 80/20 split of profits has been achieved what are the remaining profits to be split 80/20? What is the LP portion and what is the GP portion?

Question 4. What is the investors Internal Rate of Return?

Bonus Question What is the gross equity multiple and the net equity multiple for BRE III?