Question 5a: What is the debt service on the GSB loan? (2 points)

(Answers are rounded to the closest thousand dollars)

A.$102

B.$94

C.$86

D.$78

Question 5b: Using the Stabilized NOI cash flow, what is GNOSH's cash-on-cash rate of return? (3 points)

A.5.4%

B.8.0%

C.2.9%

D.3.8%

Question 5d: Select the option below that you believe best supports your opinion on whether the project is feasible.

A.The project IS feasible because the cash-on-cash rate of return is higher than other, less risky options like investing in a money-market account.

B.The project IS NOT feasible because the rate of return is below typical market expectations for similar real estate projects.

C.The project IS NOT feasible because the cash-on-cash return is OK, but the overall risk profile of the project is too high, regardless of the rate of return.

D.The project IS feasible because people want to live in renovated historic buildings and high demand equates to feasibility on real estate investments.

BEMORE APARTMENTS Project Overview: A redevelopment organization in the Glendale neighborhood - Glendale Neighbors Opposed to Substandard Housing (GNOSH) - is contemplating the rehabilitation of a 24-unit apartment building as its next project. The building, the Bemore Apartments, was constructed in 1890 and is eligible for listing on the National Register of Historic Places. The building has been vacant for 10 years and consists of 24 one-bedroom apartments. The appraiser has determined that one-half of the acquisition cost is attributable to the land value. An appraiser has informed GNOSH that the market rents for the project's units should be $725 per month. GNOSH anticipates operating expenses to run $3,500 per unit, per year. The vacancy rate will be 10 percent (10%) in the first year and five percent (5%) annually thereafter. Construction and Permanent Uses: GNOSH has put together a project budget totaling $2,070,000: T Acquisition (1/2 land cost) Construction Architectural & Engineering Permits and Fees Permanent Loan Fees Construction Interest Developer Fee Capitalized Operating Reserve DEVELOPMENT COSTS Paid During Paid at Close of Construction Permanent Financing $400,000 1,240,000 90,000 20,000 10,000 $ 10,000 40,000 200,000 60,000 Total $ 400,000 1,240,000 90,000 20,000 20,000 40,000 200,000 60,000 TOTAL $270,000 $1,800,000 151 $2,070,000 QUESTION 5 (5 points) a) What is the debt service on the GSB loan? b) What is GNOSH's cash-on-cash rate of return? In computing cash flow, use the stabilized net operating income. c) Is this a feasible project? d) Why or why not? BEMORE APARTMENTS Project Overview: A redevelopment organization in the Glendale neighborhood - Glendale Neighbors Opposed to Substandard Housing (GNOSH) - is contemplating the rehabilitation of a 24-unit apartment building as its next project. The building, the Bemore Apartments, was constructed in 1890 and is eligible for listing on the National Register of Historic Places. The building has been vacant for 10 years and consists of 24 one-bedroom apartments. The appraiser has determined that one-half of the acquisition cost is attributable to the land value. An appraiser has informed GNOSH that the market rents for the project's units should be $725 per month. GNOSH anticipates operating expenses to run $3,500 per unit, per year. The vacancy rate will be 10 percent (10%) in the first year and five percent (5%) annually thereafter. Construction and Permanent Uses: GNOSH has put together a project budget totaling $2,070,000: T Acquisition (1/2 land cost) Construction Architectural & Engineering Permits and Fees Permanent Loan Fees Construction Interest Developer Fee Capitalized Operating Reserve DEVELOPMENT COSTS Paid During Paid at Close of Construction Permanent Financing $400,000 1,240,000 90,000 20,000 10,000 $ 10,000 40,000 200,000 60,000 Total $ 400,000 1,240,000 90,000 20,000 20,000 40,000 200,000 60,000 TOTAL $270,000 $1,800,000 151 $2,070,000 QUESTION 5 (5 points) a) What is the debt service on the GSB loan? b) What is GNOSH's cash-on-cash rate of return? In computing cash flow, use the stabilized net operating income. c) Is this a feasible project? d) Why or why not