Question
On the pages below you will find parts of an offering memorandum (OM) for an apartment building that was foreclosed on by a lender. In
On the pages below you will find parts of an offering memorandum (OM) for an apartment building that was foreclosed on by a lender. In addition to the OM, I have provided some clarifying assumptions below.
Property Acquisition
The property is a judicial foreclosure so there is very limited income and expense information on the property. You can assume that the property exterior and mechanicals are in good working condition, however, a property inspection revealed $48,200 in deferred maintenance/need for capital expenditures. Loan and acquisition fees are expected to be $15,309 and $22,300 respectively.
Property Revenue, Expenses, and Expected Returns
While the building is largely occupied, rental rates are uncertain and therefore you will need to use the comparable information to determine the appropriate rent levels. For consistency of data, please go to the Shoreline and Katz Property web pages and secure comparable rents for the Shorewood neighborhood. All other needed information should be available through this assignment or as stated in the assignment. Please be sure to annualize data when appropriate.
All subject building leases are assumed to be gross leases with tenants paying for separately metered and separately billed electric costs. The property owner pays for heat and hot water. Each underground parking stall rents for $75 per month and each surface parking stall rents for $50 per month. Monthly vending and laundry net income is expected to be $500.
Annual capital expenditures are anticipated to be $300 per unit per year.
Estimated property expense categories should follow the IREM subtotals of: Administrative and Management, Operating Expenses, Maintenance, Insurance and Fees, and Payroll, with a separate line for actual Real Estate Tax Expenses from the Village of Shorewood, Assessors Office, Property Information. Use the % of GPI for elevator-serviced buildings in Milwaukee (see page 11 below). Assume that all information provided is for 2014 for a 12/31/14 acquisition date.
For the loan information, assume an 75% LTVR Life Insurance loan with a 10 year term and 30 year amortization. The property is expected to trade at a 6.75% cap rate.
Complete a property acquisition analysis using this format:
| 3955 N. Murray Street | ||||||
| Revenue | 2015 | Percent | ||||
| Rent | Units | Rents | ||||
| One Bedroom | ||||||
| Two Bedroom | ||||||
| Three Bedroon | ||||||
| Underground Parking | ||||||
| Surface Parking | ||||||
| Vending & Misc. | ||||||
| Gross Potential Income | ||||||
| Vacancy | ||||||
| Effective Gross Income | ||||||
| Expenses | ||||||
| Administrative and Management | ||||||
| Utilities/ Water/ Rubbish | ||||||
| Repairs/ Maintenance/ Supplies | ||||||
| Insurance and Fees | ||||||
| Real Estate Taxes | ||||||
| Payroll | ||||||
| Total Expenses | ||||||
| NOI | ||||||
| Capital Expenditures | ||||||
| NOI after Capital Expenditures | ||||||
| Property Valuation | ||||||
| NOI | ||||||
| Cap Rate | ||||||
| Value | ||||||
| Deferred Maintenance | ||||||
| Existing Value | ||||||
| Financing | ||||||
| Value | ||||||
| Loan-to-Value Ratio | ||||||
| Loan Amount | ||||||
| Difference | ||||||
| Loan Fees | ||||||
| Acquisition Fee | ||||||
| Deferred Maintenance | ||||||
| Total Required Equity | ||||||
| Return on Equity | ||||||
| NOI after Capital Expenditures | ||||||
| Debt Service | ||||||
| Before Tax Cash Flow | ||||||
| Return on Equity | ||||||
| Equity Build-up | ||||||
| Return on Equity and Equity Build up | ||||||
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Entrepreneurial Finance
Authors: Denise Lee
1st Edition
1948426129, 9781948426121
