Question
A builder gets a construction loan of 10 million. For simplicity, assume the loan has an interest rate at j1=6%. The loan does not require
A builder gets a construction loan of 10 million. For simplicity, assume the loan
has an interest rate at j1=6%. The loan does not require payment during the construction process.
Construction will take 3 years to complete.
(a)(1 mark) The builder will use a permanent loan to pay back the construction loan at the end of 3rd year. What is the dollar size of the permanent loan?
(b)(3 marks) Once construction done, the building will be leased. Suppose it earns an actual NOI of 1.2 million per year. Then given your answers in (a), calculate the Debt Coverage Ratio. Assume the permanent loan has an amortization of 20 years, j2=4.5% and monthly payment
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