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\mathrm{.}25$ million. The initial studies indicate that this shopping center

will support a floor$-$to$-$area ratio of $36\mathrm{.}35$ percent and a $92\mathrm{.}11$ 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\mathrm{.}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 $2\mathrm{.}5$ 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$)?$