The Complete A to Z Guide — Strategies, Structures, and Insights
Julian R. Sterling
Four Excel workbooks. The first reproduces both worked waterfalls of Chapter 12 to the
dollar; the second builds the two capital stacks of Chapter 21; the third turns the performance
measures of Chapter 24 and the diligence framework of Chapter 15 into working files. Each ends
with a checks sheet listing every figure the chapter prints beside what the workbook computes.
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Everything described below is inside it, with the read-me.
The four workbooks
Chapters 11–12
Waterfalls, promote and preferred return
Both worked examples of Chapter 12, tier by tier. The $500M fund returning $1 billion,
arriving at $900M to the LPs and $100M to the GP at exactly 20% of profit. And the
ten-investment value-add fund — seven winners at 1.8x, three losers at 0.7x, $735M of
proceeds, $235M of profit — where the catch-up clears by exactly $2 million. That $2M is
the sheet worth playing with: move the winners to 1.7x and it stops clearing entirely, which is
what the chapter means by calling the hurdle "a binary threshold". Further sheets
price the European against the American calculation on the same ten deals and size the
resulting clawback at $9M — 16% of everything the GP had already banked — build
the multi-tier structure the chapter describes, and compute the time-weighted preferred return
on the three-tranche example under both annual and quarterly compounding.
Waterfall_and_Promote.xlsx · XLSX · 26 KB
Chapter 21
The capital stack
The $56M value-add stack and the four-layer $100M development stack, both exactly as the
chapter sets them out, with the blended cost of the priority capital and what each layer
recovers across a range of exit values. A separate sheet works the leverage arithmetic in full,
from no debt to 85% loan-to-value in both directions. The chapter's 33% figure at 70% LTV is
right; the derivation printed beside it is not, and the sheet shows the working that reaches
it.
Capital_Stack.xlsx · XLSX · 22 KB
Chapters 15 and 24
Fund performance and LP diligence
IRR, TVPI, DPI and RVPI computed from one cash-flow schedule, so what each one hides becomes
visible on the same page. A gross-to-net bridge separating management fees, fund expenses and
carried interest — 2.15x gross to 1.78x net on the worked fund, and 200bps of compound
return. The J-curve, and the vintage pacing that manages it: on the same total commitment,
pacing does not shorten the J-curve, but it cuts the peak funding requirement by a third, which
is the number a treasury actually plans around. And the six-step diligence framework of
Chapter 15 as a weighted scorecard that refuses to return a recommendation while any line is
scored without evidence recorded against it.
Chapter 5 calls the four-tier spectrum the foundation of portfolio construction and
quotes every one of its return targets gross. Chapter 11 gives the fee load
for the same four tiers and notes that sophisticated LPs build comprehensive fee models.
This is that model, on the book’s own $1bn fund. The ranking survives — but the
core-to-opportunistic spread falls from 12.50 percentage points gross to 8.59 net, and the
promote, not the management fee, does more than half of that. It also finds the arithmetic
reason core funds never use the 8 per cent hurdle: a ten-year fund needs 8.97 per cent
gross to clear it, and chapter 5’s core band stops at 9. And the anchor discount that
is worth nothing: on the levered tiers the transaction fees already consume the whole
management fee, so cutting it by 25 basis points buys 30 bp of net return on core and
exactly zero on value-add. Sixty controls, all live.
The_Spectrum_Net.xlsx · XLSX · 21 KB
Conventions used throughout
Blue text
a hardcoded input — you may edit these
Black text
a formula — do not overtype these
Green text
a link to another sheet
Yellow fill
the assumptions that carry the answer
On the arithmetic in Step 4
The first worked example in Chapter 12 prints, at Step 4, "remaining $750M – $200M
– $50M = $250M". The residual is right — $1,000M less $500M of capital, $200M
of pref and $50M of catch-up does leave $250M — but the line as set does not compute:
the first figure should be $500M, and $750M – $200M – $50M is $500M, not $250M.
The final tally in the book is correct and unaffected. The workbook derives each tier from the
one above it, so the residual falls out of the arithmetic rather than being asserted.
Opening the files
The workbooks open in Microsoft Excel, LibreOffice Calc, Google Sheets and Numbers. They use
no macros and no add-ins, so nothing needs to be enabled or trusted. If your spreadsheet asks
to update links on opening, decline — there are none.
Articles on this book
Two of the calculations in these workbooks, worked out in full.
All articles.
Closing the DealTwo defensible bridges 20.70 million apart, a peg worth 7.00 million, and the six choices that remove 6.60 of a 12.00 earn-out.
CMBS and CRE CLOsWhere the loss actually lands, from appraisal reduction to realised severity, and what the B-piece is really being paid for.
How to Read a Commercial LeaseThe three refinements chapter 19 names and never performs, and the renewal rate below which the mark-to-market is worth nothing.
How to Read a Credit AgreementWhere the default actually comes from, the cure that costs 5.5 times the other, and the capacity nobody adds up.
How to Read a Real Estate Loan AgreementThe cure ratio in closed form, the four-point window in which the cheap cure works, and the cure sized to the wrong threshold.
Office Real EstateA six per cent yield that returns 3.2 per cent once the re-letting cycle is paid for, and the headline-to-net-effective rent arithmetic.
Private Markets PerformanceThirty-one of the thirty-three figures chapter 19 publishes reproduce exactly — and the two that do not are named rather than quietly adopted.
Raising a Real Estate FundThe chapter 17 funnel run on a calendar — when the first close actually lands, and why more travel does not help.
Real Estate FinanceFour people look at one building and reach four numbers; the lender is whole only above 105,109,489, twelve per cent below today’s value rather than forty.
Real Estate Financial ModelingProperty, development and fund models built line by line, and the modelling test worked end to end.
Real Estate Fund ManagementThe waterfall of 6.11, the build-to-core of 8.7 and the proceeds gap, reproduced as live formulas rather than asserted.
REIT Analysis and ValuationFFO of 532.0, AFFO of 381.0, net asset value and dividend safety — every figure a formula you can change.
Retail Real EstateThe occupancy cost of every unit in a centre, the sixteen per cent of the rent roll no tenant can sustain, and the right-size-convert-or-hold decision priced.
Sale and LeasebackA €179.5 million transaction end to end, with rent cover measured on the entity that actually signs the lease.
Self-Storage Real EstateThe cohort engine behind a 590-unit store, and the rate increase on existing customers priced against the move-outs it causes.
The Fund Finance ProfessionalChapter 8 builds the reported-to-eligible NAV bridge; chapter 9 computes every ratio without it. Two points at every state — and what a subscription line does to the IRR.
The Growth Equity InvestorWhat a pro rata cheque really costs, and the band where defending your ownership loses money.
The Private Credit InvestorThe two coverage ratios are not measured on the same thing: the erosion is 47.7 per cent, not the 28.7 the headline implies.
The Private Equity Fund Controller PlaybookThe book defines IRR, DPI, RVPI and TVPI, tells you to update them at the exit, and prints not one value. Computed: a 1.833× deal inside a fund at 0.892 TVPI.
The Venture Capital AssociateWhat defending a position costs, and how many companies a reserve pool actually defends.
Financial Risk ManagementA fund inside every limit that cannot meet a redemption — and the number that decides it is the one with no currency attached.
Business ValuationThree advisers land 26.8 per cent apart on one company, and the whole gap turns out to be 1.96 points of perpetual growth.
Quantitative FinanceThree models agree to a quarter of one per cent about a number that one unobservable input moves a hundred and three times as much.
Asset ManagementFour people quote four returns for one mandate, all correct and 2.7017 points apart — forty-eight times the manager’s net skill.
Alternative InvestmentsA manager reports 13.29 per cent and the endowment earns 6.26 — both correct, and only a third of the advertised advantage arrives.
Credit AnalysisFour defensible EBITDAs on one borrower give leverage from 3.19x to 6.47x — and the add-back argument is fifty times the covenant headroom.
Venture CapitalOne company out of twenty-eight returns 56.7 per cent of the fund, and half the capital goes in after the decision — at half the return.
Machine Learning for FinanceFive people quote the accuracy of one credit model, all five are right, and the number that decides how much money it makes is none of them.
Commercial Real Estate InvestingThe equity earned 8.6647 per cent and the investor received exactly 8.0000 — the preferred return, and nothing above it.
Mergers and AcquisitionsThe board paper says the deal creates 13,436,667 of value. The arithmetic says it destroys 17,530,855. Nobody is lying.
DerivativesThe treasury report says the hedge cost 1,233,698. That is the interest differential, not a cost.
Treasury ManagementFive cash balances for one company, all correct and 145,600,000 apart — and the revolver that is two-thirds of the liquidity leaves at a revenue fall of 8.4127 per cent.
Financial Planning and AnalysisRevenue 3.0190 per cent above budget and operating profit 16.3209 per cent below it, in the same quarter, with every figure correctly stated.
Energy TradingA position report that is 91.7031 per cent hedged and correctly computed, on a book that is short 2,542,000 MWh — and a margin call of 198,400,000 the next morning.
Construction Cost ControlA contract sum of 26,301,102 became a final account of 29,153,363 on the building that was drawn — and 85.8 per cent of what was lost was knowable on the day it was signed.
Pricing StrategyA list price of 148.00, a pocket price of 112.51, and the nine deductions in between — with what one point of price is actually worth.
Also by Julian R. Sterling
The other books with companion files. The full list of titles is on the
author page.
How to Read a Commercial LeaseThe three refinements chapter 19 names and never performs, and the renewal rate below which the mark-to-market is worth nothing.
How to Read a Real Estate Loan AgreementThe cure ratio in closed form, the four-point window in which the cheap cure works, and the cure sized to the wrong threshold.
The CBAM Compliance HandbookWhat 2027 really costs, how big the buffer should be, and the term the surrender formula counts twice.
Private Markets PerformanceThirty-one of the thirty-three figures chapter 19 publishes reproduce exactly — and the two that do not are named rather than quietly adopted.
The Private Equity Fund Controller PlaybookThe book defines IRR, DPI, RVPI and TVPI, tells you to update them at the exit, and prints not one value. Computed: a 1.833× deal inside a fund at 0.892 TVPI.
The Private Credit InvestorThe two coverage ratios are not measured on the same thing: the erosion is 47.7 per cent, not the 28.7 the headline implies.
The Distressed Debt InvestorWhere the fulcrum security actually breaks, and what an 80-cent recovery is worth once composition and time are priced.
The Real Estate Debt InvestorThe margin against the return on capital, the floor priced, and what prepayment protection buys.
The Fund Finance ProfessionalChapter 8 builds the reported-to-eligible NAV bridge; chapter 9 computes every ratio without it. Two points at every state — and what a subscription line does to the IRR.
Office Real EstateA six per cent yield that returns 3.2 per cent once the re-letting cycle is paid for, and the headline-to-net-effective rent arithmetic.
Real Estate FinanceFour people look at one building and reach four numbers; the lender is whole only above 105,109,489, twelve per cent below today’s value rather than forty.
Retail Real EstateThe occupancy cost of every unit in a centre, the sixteen per cent of the rent roll no tenant can sustain, and the right-size-convert-or-hold decision priced.
Sale and LeasebackA €179.5 million transaction end to end, with rent cover measured on the entity that actually signs the lease.
Self-Storage Real EstateThe cohort engine behind a 590-unit store, and the rate increase on existing customers priced against the move-outs it causes.
Financial Risk ManagementA fund inside every limit that cannot meet a redemption — and the number that decides it is the one with no currency attached.
Business ValuationThree advisers land 26.8 per cent apart on one company, and the whole gap turns out to be 1.96 points of perpetual growth.
Quantitative FinanceThree models agree to a quarter of one per cent about a number that one unobservable input moves a hundred and three times as much.
Asset ManagementFour people quote four returns for one mandate, all correct and 2.7017 points apart — forty-eight times the manager’s net skill.
Alternative InvestmentsA manager reports 13.29 per cent and the endowment earns 6.26 — both correct, and only a third of the advertised advantage arrives.
Credit AnalysisFour defensible EBITDAs on one borrower give leverage from 3.19x to 6.47x — and the add-back argument is fifty times the covenant headroom.
Venture CapitalOne company out of twenty-eight returns 56.7 per cent of the fund, and half the capital goes in after the decision — at half the return.
Machine Learning for FinanceFive people quote the accuracy of one credit model, all five are right, and the number that decides how much money it makes is none of them.
Commercial Real Estate InvestingThe equity earned 8.6647 per cent and the investor received exactly 8.0000 — the preferred return, and nothing above it.
Mergers and AcquisitionsThe board paper says the deal creates 13,436,667 of value. The arithmetic says it destroys 17,530,855. Nobody is lying.
DerivativesThe treasury report says the hedge cost 1,233,698. That is the interest differential, not a cost.
Treasury ManagementFive cash balances for one company, all correct and 145,600,000 apart — and the revolver that is two-thirds of the liquidity leaves at a revenue fall of 8.4127 per cent.
Financial Planning and AnalysisRevenue 3.0190 per cent above budget and operating profit 16.3209 per cent below it, in the same quarter, with every figure correctly stated.
Energy TradingA position report that is 91.7031 per cent hedged and correctly computed, on a book that is short 2,542,000 MWh — and a margin call of 198,400,000 the next morning.
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