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When preparing a memorandum for review by an internal investment committee (even if that investment committee is just you), there are at least a dozen major topics that need to be addressed. They are outlined below.
- Investment Overview – executive summary of the opportunity
- Property Description – existing and future physical property characteristics
- Business Plan – how you will make money
- Rationale – why this particular investment, and why now
- Sponsorship – identification of principals and presentation of track record
- Deal Structure – equity contributions by entity, description of any seniority/preferred/subordinate status
- Cash Flow Waterfall – rules for the equity entity return of capital and return on capital
- Sources & Uses – full capital structure (sources), and detailed total costs including transaction costs for acquisitions (uses)
- Underwriting Assumptions – all of the inputs you made in blue in your pro forma
- Returns – net cash flow, multiple on equity, NPV and IRR at the project level, and also at the individual partner levels
- Sensitivities – a spectrum of returns scenarios given different underwriting assumptions
- Risks & Mitigants – what are the risks involved, are you going to mitigate or accept them?
- Supporting Schedules
- market info / trends
- cash flow / waterfall projections
- location maps
- photos / renderings, etc.
What did I leave out?