Introduction/ Development Deal The McShane Development Company entered into a development agreement with MetLife to build industrial buildings. The main focus was for McShane to find the land, design the project, lease the project and then sell the project. Both parties agreed it would be merchant a build program. The basics framework of the deal was as follows: MetLife McShane Lender Comment Standard Construction Loan 70% Equity contribution: 90% 10% Preferred Return (Pref) 10% 10% Pref is Cumulative Profit Split after Pref (Promote) 60% 40% McShane Development Fee 3% The Deal: Industrial Project for Amazon in Oakland, California Facts ** Total Project Cost (Includes Interest and Development Fee) $17,500,000 ** Estimated Stabilized NOI in Year 3 of the Project $1,066,750 ** Estimated Exit Cap Rate in year 3 5.25% ** The project is sold at the end of year 3 ** The partners earn a full year of preferred return in year 3. All cash is distributed each year. ** Estimated Operational Cash Flow by year Year 0 1 2 3 Ops Cash Flow 50 $100, 000 $500, 000 51,066,750 Questions: Points 1) What is the initial Equity Investment for: 1/2 point A MetLife S 050 1/2 point B McShane S 050 2) What is the estimated Sales Price and Gain on Sale 1/2 point A Sales Price 5 0.50 1/2 point B Gain on Sale S 050 You should assume that the operational cash ows cover the "pref" and the amount available for the promote is the sales price less the cost of the project Total Available Gain on Sale 5: How much is distributed to MetLife and McShane 1/2 point A MetLife S 0.50 1/2 point B McShane $ 0.50 4) MetLife IRR Calculation: Year I] 1 2 3 Equity Invested |:| amaamma E::::::] Cash Flow from Operations 90, 000 450, 000 960, 075 Gain on Sale 5) McShane IRR Calculation: Year I] 1 2 3 Equity Invested |:| 1 Point amaamma [::::::1 Cash Flow from Operations 10, 000 50, 000 106, 675 Gain on Sale