Ann is looking to buy an office building in 2014. She plans to rent it out for 5 years (2015-2019) and sell it at the end of 2019.

(1) Use the first sheet of the spreadsheet (titled "NOI") to compute the Net Operating Income (NOI) for this property for 2015. Fill in the missing information in the spreadsheet.

This property has two types of operating income, rental income and parking.

Rental Income in 2015 = (# square feet)*(Annual rent per square foot in 2015)

Parking is a fixed dollar amount given

Vacancy expenses in 2015 = (Rental vacancy rate in 2015)*(rental income in 2015)

Collection losses in 2015 = (collection loss rate in 2015)*(PGI in 2015)

Operating Expenses in 2015 = (Operating expense rate in 2015)*(EGI in 2015)

(1.a) What is the NOI for 2015?

(1.b) If this building is being sold in 2014 at an asking cap rate of 6.50%, what is the asking price?

(2) Fill in the second sheet (titled "underwriting").

Where it says "Income Test", compute the biggest mortgage payment Ann can make given her NOI in 2015 computed above.

Recall from slides 12: , which implies the maximum.

(2.a) What is the biggest mortgage payment the bank will allow Ann to make given her expected NOI in 2015?

Using the maximum payment, compute the maximum loan Ann can get.

Recall for an IO loan:

The interest rate is given in the spreadsheet. Use the PMT computed in (2.a)

(2.b) What is the maximum loan amount corresponding to a DSCR of 1.2?

(2.c) What is the biggest loan Ann can get with a $1,400,000 down payment and 95% maximum LTV?

NOTE: you may use the formula Maximum Loan = ((LTV)/(1-LTV))*Down payment.

(2.d) Assume for the rest of the question that Ann will make a $1,400,000 down payment. How much will Ann need to borrow?

(2.e) What will Ann's annual debt service payment be?