Calculate the IRR for the proposed acquisition with a ten-year hold period and sale at end of ten years. Assume renovations in the first year with year one revenue being projected revenue plus one-half of increase from renovations. Year 2 revenue would be year 1 base revenue plus increase from renovations each escalated for one year.

The Lender will use 5.73% capitalization rate on net operating income after capital expenditures (above line treatment) for calculating property value for loan purposes Annual Interest rate 10-year treasury bond rate yield plus a spread of 215 basis points calculated monthly Payments are made monthly 30-year amortization period 10-year term with no prepayment penalty after year four Max loan to value is 70% Minimum Debt Service Coverage ratio is 1.20 Lender mandated capital expenditure reserve of $420 per unit annually must be used in determining net operating income in lieu of actual capital expenditures. Lender-mandated vacancy/collection loss rate of five percent (5%) Loan Fees are 1.0% Acquisition Due Diligence and Closing Costs = 1.5% of acquisition price Sale valuation capitalization rate equals same rate used for acquisition Sale commission = three percent (3%) Sale Closing Costs = 1.0% of sale price.

Apartments should achieve an increase in annual Net Operating Income of $300,000 with a capital expenditure of only $800,000 (cost plus overhead and fee).