Reference no: EM132882722

Underwriting information:

300 unit apartment building

1,500 per month average rent

7% vacancy

38% total operating expense ratio

Replacement Reserves of $250 per unit per year

3% growth rate

Purchase price is $50 million

Exit cap rate is 6.5%

Sales costs are 2%

Unlevered discount rate is 7%

Assume 5 year holding period

Problem 1: Prepare 5 year pro forma operating statement

Problem 2: What is cap rate on the purchase price?

Problem 3: Determine the sales price at the end of year 5

Problem 4: Based on your analysis, what do you think the initial value of the asset is?

Problem 5: If you buy the asset for $50 million, what is your NPV? IRR?

Assume the above but now with the following loan information:

Loan principal of $30 million

5% interest rate

30 year term with amortization

2% loan fees

Problem 6: Calculate levered cash flows

Problem 7: Calculate net sales proceeds after debt repayment

Problem 8: What are net loan proceeds?

Problem 9: What is monthly loan payment?

Problem 10: What is effective annual interest rate (effective borrowing cost)?

Problem 11: What is your required equity investment if you buy the asset for $50 million?

Problem 12: What is your equity dividend rate?

Problem 13: What is the DSCR?

Problem 14: If the required return (discount rate) increases to 10%, what is your NPV? Levered IRR?