Suppose that you are seeking to purchase a 10-acre lot with the intention of subdividing the lot and building 40 houses on the lot. You anticipate the purchase price of the parcel will be $50,000 per acre with an additional $25,000 per acre in site development costs. You estimate that your construction costs will be $125,000 per house. You expect to sell 5 houses per month beginning in month 6.

A lender is willing to provide you with a development loan for 80% of the total project costs. The proceeds of the loan will be dispersed in 6 equal draws that will take place at closing and during months 1-5. The lender will charge an origination fee equal to 1.25% of the total loan amount.

What release price should the lender charge in order to receive a 20% annual yield from this loan?