Consider a major retailer that typically utilizes 14,500 SF buildings that can be built for $5 million. If the business owns, they would finance at 80% LTV (assume 30-year FRM at 7% for a $4 million mortgage). Also assume that an annual property value increase of

3%. Thus, the sale price would be $5,000,000 x 1.0310 = $6,719,582. The mortgage balance after 10 years would be $3,432,495 and the equity reversion would be difference Or $3.287.086. Alternatively, the business can lease the property for $24/SF on a triple-net lease. Also assume operating expenses of $6/SF ($87,000 per year).

how they are getting the mortgage balance after 10 years in this problem