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 1 year and an operation phase of 5 years. The bank agrees to finance all of the construction costs and site improvements.

General Project Description

A. Site and Proposed Improvements

Site Area (in acres): 12

Site Acquisition Price: 2.25 millions

Gross Buildable Area (GBA): 190,000 sqft

Gross Leasable (GLA): 175,000 sqft

Hard cost: $54/per GBA

Soft cost (excl. interest carry and loan fees): $4.5/per GBA

Site improvement: $750,000

B. Loan Information

Construction Loan:

Loan Term 12 months

% of Construction $ Drawn the 1st 6 mths 60.00%

% of Construction $ Drawn the last 6 mths 40.00%

Annual Interest Rate 13.00%

Construction Loan Fee 2.00%

Permanent Loan:

Debt Amortization 20 years

Term of Loan 10 years

Interest Rate 12.00%

Permanent Loan Fee 2.50%

Based on the above information, please answer the following questions using the excel spreadsheet provided:

a. What will be the total project cost for Parker Road Plaza (excluding loan commitment fees and interest carry)?

b. What will be the interest carry (for construction loan) for the Parker Road Plaza project?

c. What will be the total construction loan amount that Kuehner must borrow (including interest carry)? What will be the yield to the lender on this construction loan?

d. What is the total project cost incl. loan commitment fees and interest carry and how much equity must be put into the project during the construction phase? (Kuehner will fund both loan commitment fees from project equity.)