COMMERCIAL MORTGAGES PROBLEM

Consider a commercial mortgage on a Pennsylvania strip mall which was originated on Oct 1 2018. The mortgage has the following characteristics:

• Fixed rate amortizing mortgage
• Amortization period: 30 years
• Maturity: 10 years
• Interest rate = 5% per annum
• DSCR = 1.8
• LTV = 55%
• Original loan amount = $1.3m

QUESTIONS

1. Calculate the monthly payment on this mortgage
2. What is a "balloon payment"? How can you tell from the above information that there is a balloon payment on this mortgage? (explain, in a couple of sentences)
3. Calculate the amount of the balloon payment on this mortgage. When will this balloon payment be due?
4. Calculate the estimated value of the strip mall at the time of mortgage origination, based on the information above (note: assume this is the only mortgage on the property). How could this value be determined / estimated if the property in question had not been bought or sold for a long time?
5. Imagine you work for a commercial debt private equity fund, and are considering buying this mortgage on the whole loan market. Reading the fine print, you realize that one of the main tenants of the strip mall has a lease which is about to expire. How does this fact affect your opinion of the riskiness of the mortgage? Does it make the loan riskier, or less risky? Does your answer depend on anything? If so, what?