Reference no: EM133110444

Assume you have been engaged by a real estate developer to analyze a proposed real estate investment. The property is expected to be financed with loan-to-value ratio of 80%, 8% mortgage interest rate, amortized for 30 years.  The owner is prepared invest 20% equity. You have been given the following additional information on the proposed project.

a. Total project cost or total capital budget                      = $10,000,000

b. Loan to value ratio                                                                  80%

b  Equity Dividend Rate (EDR)  or Return on Equity (ROE)   10%

d. Expense ratio                                                                          = 20%

e. Real estate tax ratio                                                                = 18%

f.  Vacancy ratio                                                                          = 2%

g. Replacement reserve ratio                                                      = 5%

h. Equity dividend rate or return on equity                                = 15%

i. Gross leasable area (GLA)                                              = 160,000 sq. ft.

j. Building Efficiency ratio                                                        = 95%

(a). Using the front door/back door model and the relevant information given above calculate the required total potential gross income (PGI) and the rent per square foot to justify the $10,000,000 investment, using the Front Door/Back Door model

(b).  Assume the NOI from the project is $1,700,000 and the lender requires a debt coverage ratio of 2.5 calculate the maximum loan amount