What is the construction loan balance

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Reference no: EM133114212

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.

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.

Reference no: EM133114212

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