The total potential revenue is $100,000 in the 1st year and it rises by 4% per year thereafter. The vacancy loss is 8%. The operating expenses are $40,000 in the first year and rise 3% per year thereafter.

The mortgage will be made at a 75% LTV. The annual interest rate is 7.0%. with 30-year amortization.

The purchase price is $500,000. The property will be sold at the end of the 3rd year at a 9.0% terminal capitalization rate. Sale expense will be 3%.

There are two partners, a sponsor and an investor. The sponsor is putting in 10% of the required equity and the investor is putting in 90% of the required equity. The cash flow from operations and sale will be split as follows: Both parties will receive a 7% preferred return on the capital that is invested and all additional cash flow will be split 30% to the sponsor/70% to the investor

 

PART I

What is the net operating income for years 1, 2, and 3? Provide values for each year.

 

What is the going-in Capitalization Rate?

 

 Indicate values for the following metrics from both unleveraged and levered perspective:

 

Annualized IRR

Equity Multiple

PART II 

A.What is the cash flow available after debt service for the three years that the investor ownsthe property? Provide values for each year.

 

B.How much interest is paid in year 1? How much principal is paid in year 1?

 

C.What is the outstanding balance on the mortgage when the property is sold?

 

D.What is the leveraged NPV of this investment (years 0, 1, 2, and 3) at a discount rate of10%?

 

PART III 

Assume that all partnership calculations are on an "after leverage" basis. 

A.What is the Investor's IRR?

 

B.What is the Sponsor's IRR?