A logistics center in Mexico City is for sale. The price is 40million pesos. The NOI in the next year is projected to be 2million pesos. Industrial development is just as hot as it is here,and the growth rate in NOI is expected to be 6%. You can get aninterest only loan at 300 basis points (simple annual interest)above the 10 year government bond rate pictured above in eitherpesos or dollars in the respective countries. Using the answer to(1) as the basis for your expectations about the exchange rate: Fora five year hold, project the NOI each year and the disposition ofthe property in the fifth year, assuming the exit cap is equal tothe entrance cap.

Find the IRR in each case:

a. An all-equity investment in pesos.

b. An all-equity investment in dollars, assuming no change inthe exchange rate over the holding period (Hint: Given the answerto (a) this is a trivial adjustment. Use round figures for theexchange rate).

c. A levered, 50% LTV, investment borrowing from a Mexicanlender, still assuming no change in the exchange rate.