Provide answers for each of the following 1. If you want to achieve a 25% rate of return and the hard, soft, and financing costs all remain the same, how much can you pay for the land? 2. Assume that you can get 75% leverage, what is the return for the equity? 3. If the cap rate is compressed to 7.5%, how would this impact the returns to equity? If leverage is increased to 75%, how does this compare to the compressed cap rate? Which is more likely? TAMU Acres: A Land Project. How much can you afford to pay for the land? Adjustment Factor: 2.000.000 2.00 Acres 1.5 10.00% 6 Land Use Land Size: FAR Loss Factor Net Leasable Space Multi-Family SF Retail SF Office/Industrial SF 87.120 SF 130.680 SF 13.068 SE 117,612 SF 70.567 SF 11,761 SE 35.284 SF 60.00% 10.00% 30.00% The following model analyzes the basic aspects of the three questions noted. Cash Flow to be Analyzed Operating Calendar 0 1 2 3 4 5 Purchase Price: ($20) MM 0 0 0 0 0 Sale: 0 0 0 0 0 $24.15 Operating Cash Flows: $1.67 51.77 51.82 $1.88 $1.93 Net Cash Flows: (520) MM $1.67 MM $1.67 MM $1.77 MM $ $1.82 MM $1.88 MM $26.08 MM Debt Service ($0.7) MM ($0.7) MM ($0.7) MM (50.7) MM (50.7) MM Debt Assumption/Repayment $12 MM 50 MM $0 MM $0 MM $0 MM ($11) MM Principal Payment ($0.21) ($0.21) ($0.22) ($0.23) ($0.24) Net Levered Cash Flows ($8) MM $1 MM $1 MM $1 MM $1 MM $14 MM $1.99 Sources and Uses of Funds Land Purchase Price Hard Costs Soft Costs Financing Costs Total Project Costs 20.00% 50.00% 25.00% 5.00% PSE $4.00 MM $30.61 $10.00 MM $76.52 $5.00 MM 538.26 $1.00 MM 57.65 $20.00 MM $153.05 Proiected Cash Flows Multi-Family Retail Office Total Annual Net Revenues Net Income SF / Avg. Unit $700 $0.74 MM $0.74 MM 800 SF $10 PSF $0.12 MM Max Units $23 PSE $0.81 MM 88 $1.67 MM GP Equity LP Equity Construction Debt Total Sources of Funds 10.00% 30.00% 60.00% $2.00 MM 25.00% $6.00 MM 75.00% $12.00 MM $20.00 MM 8.34% Sale and Growth Assumptions Going in / Exit Cap Rate: Growth Rate: Year of Sale Project Level Returns 8.25% Levered IRR: 21.94% 3.00% Levered NPV: $5.38 MM 5 Unlevered IRR: 12.25% Unlevered NPV: $3.64 MM Construction Loan Amortization Period: Construction loan Interest Rate: Debt Service Amortization Payment Debt Service Interest Only: 30 4.25% ($0.72) MM ($0.51) MM Provide answers for each of the following 1. If you want to achieve a 25% rate of return and the hard, soft, and financing costs all remain the same, how much can you pay for the land? 2. Assume that you can get 75% leverage, what is the return for the equity? 3. If the cap rate is compressed to 7.5%, how would this impact the returns to equity? If leverage is increased to 75%, how does this compare to the compressed cap rate? Which is more likely? TAMU Acres: A Land Project. How much can you afford to pay for the land? Adjustment Factor: 2.000.000 2.00 Acres 1.5 10.00% 6 Land Use Land Size: FAR Loss Factor Net Leasable Space Multi-Family SF Retail SF Office/Industrial SF 87.120 SF 130.680 SF 13.068 SE 117,612 SF 70.567 SF 11,761 SE 35.284 SF 60.00% 10.00% 30.00% The following model analyzes the basic aspects of the three questions noted. Cash Flow to be Analyzed Operating Calendar 0 1 2 3 4 5 Purchase Price: ($20) MM 0 0 0 0 0 Sale: 0 0 0 0 0 $24.15 Operating Cash Flows: $1.67 51.77 51.82 $1.88 $1.93 Net Cash Flows: (520) MM $1.67 MM $1.67 MM $1.77 MM $ $1.82 MM $1.88 MM $26.08 MM Debt Service ($0.7) MM ($0.7) MM ($0.7) MM (50.7) MM (50.7) MM Debt Assumption/Repayment $12 MM 50 MM $0 MM $0 MM $0 MM ($11) MM Principal Payment ($0.21) ($0.21) ($0.22) ($0.23) ($0.24) Net Levered Cash Flows ($8) MM $1 MM $1 MM $1 MM $1 MM $14 MM $1.99 Sources and Uses of Funds Land Purchase Price Hard Costs Soft Costs Financing Costs Total Project Costs 20.00% 50.00% 25.00% 5.00% PSE $4.00 MM $30.61 $10.00 MM $76.52 $5.00 MM 538.26 $1.00 MM 57.65 $20.00 MM $153.05 Proiected Cash Flows Multi-Family Retail Office Total Annual Net Revenues Net Income SF / Avg. Unit $700 $0.74 MM $0.74 MM 800 SF $10 PSF $0.12 MM Max Units $23 PSE $0.81 MM 88 $1.67 MM GP Equity LP Equity Construction Debt Total Sources of Funds 10.00% 30.00% 60.00% $2.00 MM 25.00% $6.00 MM 75.00% $12.00 MM $20.00 MM 8.34% Sale and Growth Assumptions Going in / Exit Cap Rate: Growth Rate: Year of Sale Project Level Returns 8.25% Levered IRR: 21.94% 3.00% Levered NPV: $5.38 MM 5 Unlevered IRR: 12.25% Unlevered NPV: $3.64 MM Construction Loan Amortization Period: Construction loan Interest Rate: Debt Service Amortization Payment Debt Service Interest Only: 30 4.25% ($0.72) MM ($0.51) MM