A developer wants to finance a project costing $2 million with an 80 percent, 10-year loan at an annual interest rate of 8 percent. The mortgage payment is by annual and it is a partially amortizing loan with a balloon payment of $137,000 scheduled at the end of year 10. The projects NOI is expected to be $314,670 during year 1 and the NOI is expected to increase at an annual rate of 3.5 percent thereafter. The lender will require a debt coverage ratio of at least 1.20 for all year 10.

a. Will the developer qualify for this loan? Assuming the debt service only includes the mortgage payments.

b. What would be the maximum loan amount that the lender would make based on the NOI and the DCR? The loan is also a partially amortizing loan with a balloon payment of $137,000 scheduled at the end of year 10 at an annual interest rate of 8 percent.

NO EXCEL PLEASE!