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DCF: modeling the hold
A discounted cash flow model projects each year of the hold: revenues (contractual rents, escalations, rollover to market with downtime and TI/LC), expenses (grown honestly, taxes reassessed on value where applicable), capital items in their years, producing annual cash flows; then a terminal value = year-N+1 NOI ÷ exit cap; everything discounted at the required return.
The model is only as honest as its levers: market rent growth, downtime months, renewal probability, TI/LC by deal type, exit cap (commonly set at or above today's for conservatism), and the discount rate. Sensitivity tables on the two or three levers that matter are not decoration — they are the analysis.
DCF's gift is forcing explicitness: every assumption sits in a cell someone can argue with. That is precisely what makes it better than a one-number method for transitional assets, and precisely why "the model says" is never an answer — the assumptions say.
Punti chiave
- Project yearly cash flows + terminal (exit-cap) value; discount at required return
- Rollover, downtime, TI/LC, exit cap and discount rate are the levers
- Sensitivity on key levers IS the analysis; assumptions carry the conclusion
Quiz della lezione 4 domande
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