## Dan G

Please need help with real estate finance HW

Queens, New York

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All answers to the questions should be written in this document.
Please solve the below problem in Excel and write the answers for the three following questions in the document
Property is 10,000 square feet
Rent is $20 per square foot and increases $3 per annum
Vacancy and Collection is 8% of PGI
Real Estate Taxes are $30,000 in year 1 and increase 5% per annum
Operating Expenses are $15,000 in year 1 and increase $2 per square foot per annum
Management is 5% of EGI
Discount Rate is 7%
Capitalization Rate is 8%
The property is been bought at $--... and the investor is using a $--... interest only mortgage at a rate of 4%.
1) Please calculate the net cash flows of the property for years 1 thru 5 plus the 6th
year reversion value. Then calculate the NPV of this investment.
2) Please calculate the IRR of this investment.
3) What is the main driver in the higher IRR? Is it higher annual cash flow or resale value? What are the risks to this scenario?
Question #4
What is the present value of an offer of $11,000 one year from now if the opportunity cost of capital (discount rate) is 12% per year simple interest rate?
The following information applies for the next two questions:
- $500-0000... purchase price
- 70% LTV
- 1.25x minimum debt service coverage ratio (DSCR)
- 4.0% interest rate
- 25 year amortization term
- $325,000 net operating income (NOI)
Question # 5
What is the capitalization rate for the above property based on purchase price?
Question # 6
Based on the underwriting criteria of a maximum 70% LTV and a minimum 1.25x DSCR, what is the maximum loan amount that the above property can support? Please round up your answer. Use the mortgage analysis tool provided on lessons tab.
Question # 5
Why do landlords usually offer rent concessions, such as free rent up front, rather than just reducing the rent?
This passage applies to both Questions # 6 and # 7. A property has an annual net operating income of $150,000. The capitalization rate for this type of property is 5%.
Question # 6
The borrower/owner has been approved by a bank for a $--... loan amount at a rate of 4% and a 30-year amortization term. The annual debt service of this loan is $103,000.
Please calculate the DCR –Debt Service Ratio for this loan?
Question # 7
Please calculate the LTV – Loan to Value for this loan?
Question # 8
Suppose a property worth $15 million in the marketplace provides an initial annual gross income of $3 million and a net income of $1.5 million. What is the GIM, and what is the cap rate of this property?
Question # 9
A real estate investment property has $100 in annual operating expenses and a 50% expense ratio. Assuming a GIM of 10x, what is the value of this property?
Question # 10
Can you provide 2 examples of tenants that are more likely to be sticky, that is stay in the space longer and wish to renew, independent of the lease term?

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