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Partnership / LLC Models

Adds Limited Partnership and LLC analysis capability to planEASe, enabling you to take any property projected with planEASe and easily convert the analysis into a Limited Partnership or LLC forecast with final reports and graphs suitable for investor presentation. In addition to all the capabilities of planEASe itself, these models allow as many Partnership Fees as you want, allow for separate allocation of tax and cash benefits, and handle Working Capital, Preferred Returns and Staged Investments. (Requires planEASe Base)



Real Estate Group Investments in the past few decades have evolved largely from the Limited Partnership form to a Limited Liability Company (LLC) form, although the legal and tax environments in many states still favor the Limited Partnership form. Lately, the Tenants - In - Common (TIC) format has arisen to take advantage of the 1031 Exchange provisions of the Income Tax Code. As a consequence, there are several terminologies used to describe Group Investments (and their participants) which, for purposes of financial analysis, are identical. Accordingly, the planEASe Partnership / LLC Models have evolved to use the following terminology which will be used here to represent investments in whichever of these forms is relevant to your situation:

Model

 Measure

 Group Name

 Manager Name

 Members Name

RPI

 IRR

 Partnership

 General Partner

 Limited Partner (or Limited)

RPM

 MIRR

 Partnership

 General Partner

 Limited Partner (or Limited)

RPR

 IRR

 LLC

 Managing Member

 Group Member (or Member)

RPF

 MIRR

 LLC

 Managing Member

 Group Member (or Member)



If you have purchased the Partnership / LLC Models, you have an additional choice to Convert Assumptions on the File Menu at the Assumption Edit Screen. This option allows you to convert Real Estate Investment Analysis Assumption Sets to Partnership / LLC Models Assumption Sets (and vice-versa). Thus you may begin analysis of a property with the Real Estate Investment Analysis, and easily convert the analysis into the Partnership / LLC format when that becomes appropriate.

Sensitivity and Risk Analysis may be performed on any assumption value, just as with all other model series. General Partners / Managing Members will find this to be most useful in structuring the appropriate cash and tax distribution methodologies for a particular property in consideration of the attractiveness of the rate of return for the Limited Partners / Group Members versus their own return from the project. Sensitivity and Risk Analysis are also extremely appropriate for the financial projections shown to the Limited Partners / Group Members because they get away from the typical "one point" analysis included in private placement memoranda, and thereby mitigate liabilities involved when events don't proceed as planned.

Sensitivity Analyses have also proven their worth as discussion papers in regard to questionable assumptions such as the investor's tax rate and the projected sale price. When produced in investor meetings, these graphs serve the dual purpose of allaying investor concerns and presenting the General Partner / Managing Member as one who has thoroughly investigated and planned the investment from the Limited Partner / Group Member perspective.

There are two General Assumption Pages added to your Assumption Set when you convert to Partnership / LLC analysis: a Partnership / Group Page and a Distribution Page. The assumptions on these pages are described below.

Partnership / Group Page assumptions deal with the funding of the Partnership / LLC. The individual assumptions are:

  • TOTAL INITIAL INVESTMENT is the amount of money required to be raised to fund the initial purchase of the property and Working Capital Maximum. If the amount entered is less than the sum of the Cash Flow Before Tax at the Buy time and the Working Capital Maximum, planEASe automatically makes up the difference with either an assessment for the remaining amount or a loan from the General Partner / Managing Member, depending on which method has been chosen for funding shortfalls (see below).

  • WORKING CAPITAL MINIMUM is the minimum level of working capital for operations. If less than this amount is available, the Limited Partners / Group Members are assessed or a loan is made by the General Partner / Managing Member to bring working capital to the Working Capital Maximum, depending on the shortfall funding method chosen (see below).

  • WORKING CAPITAL MAXIMUM is the maximum working capital to be retained in the Partnership / LLC. If more than this amount of cash is available (and cash distribution has begun), the excess is distributed.

  • WORKING CAPITAL INTEREST RATE is the percentage interest rate earned on the Working Capital.

  • GENERAL PARTNER / MANAGING MEMBER LOAN INTEREST RATE is the percentage interest rate paid on any loans made by the General Partner / Managing Member to fund shortfalls. Any negative value causes the model to fund shortfalls by assessing the Limited Partners / Group Members.

  • GENERAL PARTNER / MANAGING MEMBER TAX RATE is the percentage tax rate used to calculate the taxes paid by the General Partner / Managing Member in the General Partner / Managing Member Cash Flow Projection.

  • NUMBER OF UNITS ISSUED is used to produce the Limited Partner / Group Member Projection (Per Unit) output page. All cash and tax liabilities distributed to the Limited Partners / Group Members are divided by this number to produce the unit forecast.

  • CASH DISTRIBUTION PATTERN is entered as x.y where y specifies the frequency of cash distribution. A y value of 0 specifies monthly cash distributions, 1 means annual, 2 means semi-annual, and 4 means quarterly. x specifies the first month of the calendar year in which a distribution occurs under the specified pattern, where the months are numbered 1 through 12. Thus a value of 12.1 specifies annual cash distributions each December, and 1.4 means quarterly distributions each January, April, July, and October.

Distribution Page assumptions deal with the Partnership / LLC methods and formulas for distributing cash and tax liabilities between the Partners / Members. For both ongoing operations and upon sale of the property, Partnership / LLC cash is distributed according to a Stepdown Allocation. Stepdown means that, step-by-step, cash is allocated according to the following rules, until no more cash remains to be allocated. When all cash available has been allocated, any remaining allocations (if any) are not performed. The cash available for allocation is the total cash available (at sale), or the total cash available less the maximum working capital (for ongoing operations). The Stepdown Allocation is:




 Stepdown Allocation of Funds Available for Distribution

FIRST:

 To pay any interest due to the General Partner / Managing Member on any loans he has made to the Partnership / LLC pursuant to funding shortfalls

SECOND:

 To repay the principal amounts of any loans from the General Partner / Managing Member

THIRD:

 To pay any arrearage for the Preferred Return to the Limited Partners / Group Members

FOURTH:

 To pay the Preferred Return for the period to the Limited Partners / Group Members

FIFTH:

 If the property has been sold, to repay the specified percent of the total investment by the Limited Partners / Group Members

SIXTH:

 If the property has been sold, to pay the specified fee to the General Partner / Managing Member on sale

SEVENTH:

 Any remaining cash is split between the Partners / Members according to the percentage specified (which percentage may be different for on_going operations and final distribution on sale).


(Because every sale in a Unit Sales project represents a sale of Partnership / LLC Assets, the Step-down Allocation of Funds for Unit Sale analyses is slightly different from this table)

The assumptions specifying the numbers in these cash distributions and the allocation of tax liabilities are:

  • CASH DISTRIBUTION START DATE is the date on which the Partnership / LLC will begin distributing cash. Until this time, the Partnership / LLC retains all cash and earns interest on it. After this date, the system distributes all cash in excess of the Minimum Working Capital according to the Stepdown Allocation. A zero value defaults to the Acquisition Date. This date may be used to fund a reserve for later negative cash flows (such as deferred maintenance, for instance). In such cases, put the reserve into the Initial Investment amount so that the initial investment is sufficient to cover the initial cash needs, the maximum working capital and the reserve required. Then set this date beyond the date of the negative cash flow, and planEASe will retain the money until it is required.
  • PREFERRED RETURN TO LIMITEDS / MEMBERS is the percent preferred return discussed in steps three and four of the Stepdown Allocation. The preferred return is computed based on the total investment made by the Limited Partners / Group Members at the time the return is paid. Thus, if a staged investment is planned, the amount of the preferred return to be paid annually grows as the additional investments are made. If the percentage is positive the preferred return is cumulative (that is, if cash is not available to pay the return in one year the amount of the arrearage is added to the preferred return due for payment when such cash is available). Any arrearage does not compound. If the percentage is negative the preferred return is not cumulative, and no arrearage is computed.
  • CASH TO LIMITEDS / MEMBERS is the percentage referred to in step seven of the Stepdown Allocation. A value of 90 means that, after all previous cash allocations have been performed, 90% of the remaining cash from operations is distributed to the Limited Partners / Group Members, and the remaining 10% goes to the General Partner / Managing Member.
  • NET TAXABLE INCOME TO LIMITEDS / MEMBERS is the percentage of the Taxable Income computed in the Partnership /Group Taxable Income Projection output page that is allocated to the Limited Partners / Group Members.
  • INVESTMENT RETURN TO LIMITEDS / MEMBERS is the percentage of the total investment made by the Limited Partners / Group Members which is to be returned to the them pursuant to step five of the Stepdown Allocation. In most cases where such an allocation step is specified, the percent is 100% as shown here. If the assumption value here is -1.00 (minus 1) then planEASe returns an amount to the Limited Partners / Group Members in this allocation step such that the total of that amount plus all previous cash distributed to them during operations is equal to their total investment.
  • FEE TO GENERAL PARTNER / MANAGING MEMBER ON SALE is the fee to be paid to the General Partner / Managing Member (if any) upon the sale of the property pursuant to step six of the Stepdown Allocation. If an amount greater than 100 is entered, the model presumes that it is a dollar amount. If the amount is 100 or less, the model assumes that it represents a percentage of the total cumulative preferred return paid to the Limited Partners / Group Members during the course of the operation of the Partnership / LLC. (Use of this feature requires that the preferred return be planned as cumulative. The feature does not work with non cumulative Preferred Returns.) A value of zero eliminates any such fee from the calculation. This fee is normally assumed to represent an allocation of Partnership / LLC cash among the Partners / Members, and therefore does not give rise to tax deductions or taxable income. If you want to have the fee deducted by the Partnership / LLC and added to the General Partner / Managing Member Fees, enter the amount or percentage as negative. In this case, the fee is still shown in the "Distributed to General" column, but is also added to the "Taxable Income" for the General Partner / Managing Member Cash Flow Projection and subtracted from the "Ordinary Income" column of the Limited Partner / Group Member Projection (Per Unit).
  • SALE PROCEEDS TO LIMITEDS / MEMBERS is the percentage of Partnership / LLC cash allocated to the Limited Partners /Group Members pursuant to step seven of the Stepdown Allocation upon sale of the property and final distribution of the Partnership /LLC assets.
  • CAPITAL GAIN TO LIMITEDS / MEMBERS is the percentage of the tax liability for the Partnership / LLC capital gain on sale of the property which is allocated to the Limited Partners / Group Members.
  • INVESTMENT CREDIT TO LIMITEDS / MEMBERS In the case that the Partnership / LLC generates Investment Tax Credits, this assumption enables you to allocate the Credits between the Partners / Members. Such allocated credits are shown in the Limited Partner / Group Member Projection (Per Unit) and the General Partner / Managing Member Cash Flow Projection as additions to the "Taxes" columns on those pages.
The Basic Analysis Reports for the Limited Partnership / Group (LLC) Investment Analysis consist of five pages, which are:

  • Before Tax Cash Flow Projection details the results of the operation of the property (and the payment of Partnership /LLC fees), resulting in the cash projected to be received by the Partnership / LLC as a result of operations (the Cash Flow Before Tax).
  • Source and Use of Proceeds details the projected accounting of funds within the Partnership / LLC, showing all funds received, and the projected disbursements to the Partners / Members.
  • Partnership / Group Taxable Income Projection projects the tax reporting position for the Partnership / LLC, showing all tax liabilities and deductions other than the Capital Gain on sale and the Investment Tax Credits, if any.
  • Limited Partner / Group Member Projection (Per Unit) This page projects the results of an investment in one unit of the Partnership / LLC by a Limited Partner / Group Member, both before and after tax. Considering the speed with which an analysis may be rerun, you may want to change the number of units issued and rerun the analysis for Limited Partners / Group Members contemplating an investment in partial or multiple units. Such a rerun is easily personalized by changing the number of units issued (which can be fractional if you want) and the Limited Partner / Group Member tax rates.
  • General Partner / Managing Member Cash Flow Projection contains all fees and cash distributions due the General Partner / Managing Member from the Partnership / LLC. Additionally, the tax liabilities are shown, together with the Net Present Value of the cash flows before and after tax.

Adds Limited Partnership and LLC analysis capability to planEASe, enabling you to take any property projected with planEASe and easily convert the analysis into a Limited Partnership or LLC forecast with final reports and graphs suitable for investor presentation. In addition to all the capabilities of planEASe itself, these models allow as many Partnership Fees as you want, allow for separate allocation of tax and cash benefits, and handle Working Capital, Preferred Returns and Staged Investments. (Requires planEASe Base)