Reference no: EM132991142
Question - A real estate developer will build a small office complex in Montreal. The project has a total budget of $1,300,000 including interest estimated at $15,000. The expected cash flows are as follows (assume each cash flow occurs at the end of the quarter):
Quarter 1: Land purchase: $200,000 Soft costs: $100,000 Hard costs: $200,000
Quarter 2: Soft costs: $100,000 Hard costs: $200,000
Quarter 3: Hard costs: $185,000
Quarter 4: Hard costs: $300,000
The lender is willing to provide a construction loan with a maximum LTC of 70% including interest. The interest rate is expected to be 5% per year throughout the development process and will be capitalized quarterly.
Required -
a) What is the construction loan balance at the end of Quarter 4?
b) If the stabilized NOI at the end of Quarter 4 is $120,000 and comparable cap rates are 8%, calculate the amount the equity investors could withdraw from the project if they secure a 5-year mortgage with an interest rate of 5%, an amortization period of 15 years, a maximum LTV of 75% and a minimum DSCR of 1.25.
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