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Divina Developers, as the general partner, will retain all operating rights, including the right to decide when the restaurant and property will be sold. QUESTIONS 1. 2. Identify and explain the positive and negative aspects of the proposed business entity for Fergus and Freya. Calculate the IRR for this project based on a sale in Year 6 with a 10% cap rate. Analyze the structure of the equity proposal. If you were Fergus and Freya, would you accept this offer as it stands? If not, what would you negotiate? 3. Concept Check Star or Prize: Which Bank? Dean Hotel Investments, an S-corporation, has identified a potential investment property near a major New England airport. The 302-room Blackstone Hotel is a recently defranchised upscale a HEGOTIATING SKILLS 343 hotel asset that has been lender owned for several years and fallen on hard times Dean Herel Investments is proposing converting the independent hotel to a majos limited service brand, which would provide brand recognition and an increased customer base, The property has been on the market for two years and the current asking price is 58.000.000, which is well below comparable sales in the area. The airport market has seen a slight drop in occupancy and ADR over the past couple of years due to the struggling economy. Experts have estimated that as soon as the economy begins to rebound, so will occupancy and Dean Hotel Investments plans on converting the property to a limited service brand, thereby creating the market leader in a price sensitive marketplace. The planned renovations and reflag- ging the investment should result in a total project cost of $11,535,000. Dean Hotel Investments has identified an equity investor willing to invest 35% of the total project cost. Dean has also Found a lender, Star Bank, willing to provide 50% of the project cost , and a second lender, Prize ADR Bank, to provide a mezzanine loan for the remaining 15% The following terms were offered by Star Bank Interest Rate: 7% Loan Term: 10 Points: 4 points up front Collateral: Hotel owned by Dean Hotel Investments The following terms were offered by Prize Bank: Interest Rate: 12% Loan Term: 5 Points: 2 points up front Collateral: Subordinated claim of the Blackstone Hotel UESTIONS 1. 2. 3. Calculate the amount of the loan from Star Bank, payment amount, and effective interest rate. Calculate the amount of the loan from Prize Bank, payment amount, and effective interest rate. Analyze the terms offered by both banks. If you were Dean Hotel Investments, what terms would you negotiate, and why? ucent Check u Ali the process of developing a new upscale Thai 1 in a large metropolitan city. The Divina Developers, as the general partner, will retain all operating rights, including the right to decide when the restaurant and property will be sold. QUESTIONS 1. 2. Identify and explain the positive and negative aspects of the proposed business entity for Fergus and Freya. Calculate the IRR for this project based on a sale in Year 6 with a 10% cap rate. Analyze the structure of the equity proposal. If you were Fergus and Freya, would you accept this offer as it stands? If not, what would you negotiate? 3. Concept Check Star or Prize: Which Bank? Dean Hotel Investments, an S-corporation, has identified a potential investment property near a major New England airport. The 302-room Blackstone Hotel is a recently defranchised upscale a HEGOTIATING SKILLS 343 hotel asset that has been lender owned for several years and fallen on hard times Dean Herel Investments is proposing converting the independent hotel to a majos limited service brand, which would provide brand recognition and an increased customer base, The property has been on the market for two years and the current asking price is 58.000.000, which is well below comparable sales in the area. The airport market has seen a slight drop in occupancy and ADR over the past couple of years due to the struggling economy. Experts have estimated that as soon as the economy begins to rebound, so will occupancy and Dean Hotel Investments plans on converting the property to a limited service brand, thereby creating the market leader in a price sensitive marketplace. The planned renovations and reflag- ging the investment should result in a total project cost of $11,535,000. Dean Hotel Investments has identified an equity investor willing to invest 35% of the total project cost. Dean has also Found a lender, Star Bank, willing to provide 50% of the project cost , and a second lender, Prize ADR Bank, to provide a mezzanine loan for the remaining 15% The following terms were offered by Star Bank Interest Rate: 7% Loan Term: 10 Points: 4 points up front Collateral: Hotel owned by Dean Hotel Investments The following terms were offered by Prize Bank: Interest Rate: 12% Loan Term: 5 Points: 2 points up front Collateral: Subordinated claim of the Blackstone Hotel UESTIONS 1. 2. 3. Calculate the amount of the loan from Star Bank, payment amount, and effective interest rate. Calculate the amount of the loan from Prize Bank, payment amount, and effective interest rate. Analyze the terms offered by both banks. If you were Dean Hotel Investments, what terms would you negotiate, and why? ucent Check u Ali the process of developing a new upscale Thai 1 in a large metropolitan city. The