BEMORE APARTMENTS

Project Overview: A redevelopment organization in the Glendale neighborhood Glendale Neighbors Opposed to Substandard Housing $($GNOSH$)-$ is contemplating the rehabilitation of a $24-$unit apartment building as its next project. The building, the Bemore Apartments, was constructed in $1890$ and is eligible for listing on the National Register of Historic Places.

The building has been vacant for $10$ years and consists of $24$ one$-$bedroom apartments. The appraiser has determined that one$-$half of the acquisition cost is attributable to the land value.

An appraiser has informed GNOSH that the market rents for the project's units should be $$725$ per month. GNOSH anticipates operating expenses to run $$3,500$ per unit, per year. The vacancy rate will be $10$ percent $(10\%)$ in the first year and five percent $(5\%)$ annually thereafter.

Construction and Permanent Uses: GNOSH has put together a project budget totaling $$2,070,000$ :

$\backslash$table$[[$DEVELOPMENT COSTS$],[,\backslash$table$[[$Paid During$],[$Construction$]],\backslash$table$[[$Paid at Close of$],[$Permanent Financing$]],$Total$],[$Acquisition $(1/2$ land cost$),$$$400,000,,$$$400,000],[$Construction$,1,240,000,,1,240,000],[$Architectural & Engineering,$90,000,,90,000],[$Permits and Fees,$20,000,,20,000],[$Permanent Loan Fees,$10,000,$$$10,000,20,000],[$Construction Interest,$40,000,,40,000],[$Developer Fee,,$200,000,200,000],[\backslash$table$[[$Capitalized Operating$],[$Reserve$]],,60,000,60,000],[$TOTAL$,$$$1,800,000,$$$270,000,$$$2,070,000]]$Project Overview: A redevelopment organization in the Glendale neighborhood $$ Glendale Neighbors Opposed to Substandard Housing $($GNOSH$)$ is contemplating the rehabilitation of a $24-$unit apartment building as its next project. The building, the Bemore Apartments, was constructed in $1890$ and is eligible for listing on the National Register of Historic Places. Financing: The Glendale Savings Bank $($GSB$)$ is eager to help GNOSH renovate this eyesore and has agreed to provide both permanent and construction financing for the project. GSB will make a permanent loan at seven percent $(7\%)$ interest with a $15-$year term and a $30-$year amortization schedule. GSB$\text{'}$s minimum debt coverage ratio is $1\mathrm{.}25$ ; and its maximum loan$-$to$-$value rat

The building has been vacant for $10$ years and consists of $24$ one$-$bedroom apartments. The appraiser has determined that one$-$half of the acquisition cost is attributable to the land value.

An appraiser has informed GNOSH that the market rents for the project$$s units should be $$725$ per month. GNOSH anticipates operating expenses to run $$3,500$ per unit, per year. The vacancy rate will be $10$ percent $(10\%)$ in the first year and five percent $(5\%)$ annually thereafter.

Construction and Permanent Uses: GNOSH has put together a project budget totaling $$2,070,000$:

Paid During Construction

Acquisition $(1/2$ land cost$)$ $$400,000$ Construction $1,240,000$

Paid at Close of Permanent Financing

$ $10,000$

$200,00060,000$

$$270,000$

Total

$ $400,0001,240,00090,00020,00020,00040,000200,00060,000$

$$2,070,000$

E

DEVELOPMENT COSTS

Architectural & Engineering Permits and Fees Permanent Loan Fees Construction Interest Developer Fee

Capitalized Operating Reserve

$90,00020,00010,00040,000$

TOTAL $$1,800,000$

Version: $03/12/2024$

Exam Packet

Financing: The Glendale Savings Bank $($GSB$)$ is eager to help GNOSH renovate this eyesore and has agreed to provide both permanent and construction financing for the project. GSB will make a permanent loan at seven percent $(7\%)$ interest with a $15-$year term and a $30-$year amortization schedule. GSB$$s minimum debt coverage ratio is $1\mathrm{.}25$; and its maximum loan$-$to$-$value ratio is $75$ percent. GSB$$s construction loan will equal the amount of the permanent loan.

GNOSH$$s board does not want to expose the organization to a lot of financial risk without adequate financial reward. The board$$s policy is to require a minimum cash$-$on$-$ cash return on investment $($CoC ROI$)$ of $10\%.$

ASSIGNMENT ONE: MARKET RATE DEVELOPMENT QUESTION $1$

What is the constant on GSB$$s permanent loan? $(5$ points$)$

QUESTION $2$

How much would GSB loan on the project based only on its debt coverage ratio $($DCR$)$ given the stabilized NOI for the market rents? $($The loan$-$to$-$value ratio is covered in Question $4)(10$ points$)$ QUESTION $3$

The appr

QUESTION $3$

The appraiser has identified a market capitalization rate of $8\%(\mathrm{.}08).$ What is the fair market value $($FMV$)$ of Bemore? $(5$ points$)$

QUESTION $4$

GSB has also indicated that its loan cannot exceed $75$ percent of the project$$s as$-$ complete fair market value $($LTV $=75\%).$ How much would GSB loan based only on the loan$-$to$-$value $($LTV$)$ ratio? $(5$ points$)$

QUESTION $5$

How much will GSB offer to lend? $(2$ points$)$

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Exam Packet

QUESTION $6$

What is the debt service on the GSB loan? $(2$ points$)$

QUESTION $7$

How much equity must GNOSH raise to do the project? $(3$ points$)$