Reference no: EM133058559

Assume that you will acquire and hold a stabilized asset for three years.

The total potential revenue is $100,000 in the 1st year and it rises by 4% per year thereafter. The vacancy loss is 8%. The operating expenses are $40,000 in the first year and rise 3% per year thereafter.

The mortgage will be made at a 75% LTV. The annual interest rate is 7.0%. with 30-year amortization.

The purchase price is $500,000. The property will be sold at the end of the 3rd year at a 9.0% terminal capitalization rate. Sale expense will be 3%.

There are two partners, a sponsor and an investor. The sponsor is putting in 10% of the required equity and the investor is putting in 90% of the required equity. The cash flow from operations and sale will be split as follows: Both parties will receive a 7% preferred return on the capital that is invested and all additional cash flow will be split 30% to the sponsor/70% to the investor

PART I

1. What is the net operating income for years 1, 2, and 3? Provide values for each year.
2. What is the going-in Capitalization Rate?
3. Please indicatevalues for the following metrics from both unleveraged and levered perspective:
4. Annualized IRR
5. Equity Multiple