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Question 1 ( 1 0 points ) The CEO of Kuehner Development Co . has just come from a meeting with his marketing staff where

Question 1(10 points)
The CEO of Kuehner Development Co. has just come from a meeting with his
marketing staff where he was given the latest market study of a proposed new
shopping center, Parker Road Plaza. The study calls for a construction phase of one
year an operation phase of five years. The property is to be sold at the end of the
fifth year of operation.
The marketing staff has chosen a 12-acre site for the project that they believe they
can acquire for $2.25 million. The initial studies indicate that this shopping center
will support a floor-to-area ratio of 36.35 percent and a 92.11 percent leasable area
ratio. This means that the gross building area will be 190,000 square feet, and the
gross leasable area will be 175,000 square feet.
The head of Kuehner s construction division assures the CEO that construction can
keep hard costs to $54 per square foot and soft costs (excluding interest carry and all
loan fees) to $4.50 per square foot. The division has decided to subcontract all of the
site improvements at a total cost of $750,000.The Shawmut Bank has agreed to provide interim financing for the project. The bank
will finance all of the construction costs and site improvements at an annual rate of
13 percent plus a loan commitment fee of two points. The construction division
estimates that 60 percent of the total direct cost will be taken down evenly during
the first six months of the construction phase, while the remaining 40 percent will be
taken down evenly during the second six months of the construction phase. Kuehner
expects to obtain permanent financing from the Acme Insurance Co. at an interest
rate of 12 percent for 20 years with a 2.5 percent prepaid loan fee and a 10-year
call. Kuehner is expected to make monthly loan payments.Question 5(10 points)
What will be the yield to the lender on this construction loan (in decimals, rounded
to 3 digits)?

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