1. Assume you have been engaged by a real estate developer to analyze a proposed real estate investment. The property is expected to be financed with loan-to-value ratio of 80%, 8% mortgage interest rate, amortized for 30 years. The owner is prepared invest 20% equity. You have been given the following additional information on the proposed project.

a. Total project cost or total capital budget = $10,000,000

b. Loan to value ratio 80%

b Equity Dividend Rate (EDR) or Return on Equity (ROE) 10%

d. Expense ratio = 20%

e. Real estate tax ratio = 18%

f. Vacancy ratio = 2%

g. Replacement reserve ratio = 5%

h. Equity dividend rate or return on equity = 15%

i. Gross leasable area (GLA) = 160,000 sq. ft.

j. Building Efficiency ratio = 95%

(a). Using the front door/back door model and the relevant information given above calculate the required total potential gross income (PGI) and the rent per square foot to justify the $10,000,000 investment, using the Front Door/Back Door model (5 points)

(b). Assume the NOI from the project is $1,700,000 and the lender requires a debt coverage ratio of 2.5 calculate the maximum loan amount (3 points)