Company X operates in a wide space providing financing and advisory solutions to owners of Senior Living, Healthcare, Hospitals, and Market-Rate/Affordable Multifamily projects. In today's marketplace much of the financing solutions required to meet clients' needs include some form of agency-insured mortgage (i.e. FNMA, FHLMC, FHA, etc.). The mortgages allow a borrower to receive a non-recourse loan (the only collateral is the property itself), at historically low rates by "borrowing" the credit score of a government-insured entity.

One of Company X's existing clients, Aissi Enterprises, recently heard that FHA is offering attractive interest rates to strong borrowers and has approached an originator at the firm to request an insured loan on a Market-Rate Multifamily Housing property they have owned since late 2017. The property they currently own contains 150 units located in Miami, Florida and has $5,650,000 of existing debt from Bank of Kent. The client feels that the property is under-levered and can afford at least $8,250,000 of debt. The client has a large appetite for multifamily projects and is looking to grow, therefore they would like to refinance the existing debt and take any remaining cash to acquire a new property they are considering purchasing.

The client has been a long-standing client of Company X and has five other loans outstanding totaling approximately $17,000,000. The originator has received the facility's income statement and budget in Excel. Your manager has asked you to determine if the property can afford to take on this debt and if it is a prudent credit decision for Company X to make.

Details

A.Assumptions

Assume that the borrowing entity is a single-purpose entity which only owns the subject property and receives 100% of the net cash-flow.

The interest rates today are 4.13% for a 30-year loan term with 30-year amortization.

OREC will charge a fee of 1% to make the loan and there will be another 1% of various costs related to closing the loan. These fees can be included in the new loan.

Assume property did not request or receive any COVID relief funds.

B.Credit Limits

The program limits the loan to a maximum of 80% of the project's value.

The program requires that the project can generate cash flow of at least 125% (1.25x) of the projected debt payments.

C.Borrower Group

Aissi Enterprises, the owner of the borrowing entity, currently has $550,000 of liquidity.

You have the following information on their other loans with OREC.

The case below contains a partial set of data - you may need to make estimates and assumptions to construct a case.

A PDF summary memo of your assessment and recommendation to proceed with a loan as described below. This memo may include additional tables and charts.

An Excel model of your business case and calculations. Please ensure your excel model references the source excel provided.