A question we wanted to try and answer before diving into a specific city.
If you want to get to the meat and potatoes, just check out slides 2, 21, 33, 36 and 44.
A lot will change with the current world pandemic as well as upcoming 2020 US Census. Analysis has its shortfalls for sure (see slide 4), so very open to input/feedback.
Goal
I wanted to get a quick feel (i.e. < 30 min) for if/how real estate being included on a business purchase would impact valuation.
Input
Longer amortization period (i.e. 25-30 years vs 7-10)
Higher down payment (i.e. 25-30% vs 10-15%)
Output
The answer is unfortunately complex given the need to look at the real estate and business returns separately and then holistically as well as the exponential complexity of inputs for two full models.
Takeaways
Stating the obvious, but regarding just the business acquisition side the longer amortization period increases IRR/COC
Also stating the obvious, regarding the business acquisition the higher down payment decreases IRR/COC
Because of these linearly inversely related facets the impact can be positive, negative or neutral related to IRR/COC and will need to be modeled on a case by case basis for impact
See below for example of a base case 45%/84% COC/IRR deal shifting to 48%/92% for one deal (i.e. improves economics)
See below for another example of a base case 58%/140% COC/IRR deal shifting to 56%/129% for one deal (i.e. worsens economics)
Relating to real estate assuming the note does nothing but allow for a lower down payment it is beneficial, but not material
If amortization length has to be adjust downward at all it is clearly a negative in a very material way