Reference no: EM133495850

Question

1. A property has 12,000 sqm and has an average monthly rent of €10/sqm/month.The lease expires at the end of the second year. Comparable buildings are rented at€9/sqm/month and sell at a 8% cap rate. Assuming no transaction costs, nor taxes,vacancy, TIs/LCs after lease expiry, non-recoverable and immediate re-letting, etc.,use the 'quick check' method to determine the(i)value,(ii)yield based on current rentand this value

2. Now slightly change the assumptions. The lease expires after one year and youexpect vacancy afterwards but the borrower would be able to sell the building vacantat the end of year 2 at a 10% cap rate based on ERV, and there would be a cost of€100,000to selling. At the date of the loan acquisition the loan has a nominal value of€15 million and the loan has an interest rate of 5% and no amortization. There are noother costs (e.g. insolvency administrator, acquisition or other exit costs, taxes, etc.).A cash trap is in place when you buy the loan but there is no cash on account at thatpoint in time. Rent and interest are paid once a year at the end of the year. Assumingyou expect a 1.25 multiple on your investment(i)how much can you pay for the loan,(ii)what discount to the loan amount does this present and(iii)what would be yourdebt yield based on your purchase price of the loan?Now slightly change your assumptions. Assume that the loan amount is €12 million,and that you will be able to sell at the end of year two at a 13% cap rate based onERV. All other assumptions stay the same.(iv)How much can you pay for the loan,(v)what discount to the loan amount does this present and(vi)what would be yourdebt yield based on your purchase price of the loan?Show all elements of your property/borrower and the loan cash flows and the cashflow of the NPL purchaserfor year 1 and year 2 for both loan amounts, clearlyindicating which items occur in each period.Provide the details of your calculation aspart of your answer.

3. What is a DPO and why may a lender agree to one versus a foreclosure resolution,statinghow the methods typically differ in terms ofIRR, Multipleandrisk.