Transaction Summary

You are the senior acquisitions associate at a New York$-$based private equity fund with a $$core$$ investment focus. You have reached an agreement to purchase a well$-$located, $185,000$ square foot office building in a solid suburban market. It was built in $2020$ and has no additional leasing since the pre$-$development leases were signed. The submarket is quite desirable with no new supply coming on$-$line, yet economic growth is uncertain.

Income Summary

It is currently leased to three tenants on a gross $($full$-$service$)$ basis: Tenant #$1$ occupies $50,000$ square feet at $$29$ per square foot annually through $12/2032,$ Tenant #$2$ occupies $80,000$ square feet at $$28$through $12/2033,$ and Tenant #$3$ occupies $36,500$ square feet at $$32$ per square foot through $12/2034.$ Other$/$ancillary income has added another $$4$ per total sf of revenue annually, which you don$$t see changing after acquisition. Operating expenses have consistently been $$14$ per total sf annually but you expect to immediately reduce this by $14\mathrm{.}3\%$ at the time of closing. On a run$-$rate basis $($stabilized$),$ capital expenditures, leasing commissions, and tenant improvements are expected to cost you $$0\mathrm{.}65$ per total sf annually. There is no growth expected from this investment $($flat revenue, flat expenses, flat cap ex$,$ TI$$s$/$LC$$s$).$

Capitalization Summary

You are purchasing this building for $$227\mathrm{.}00$ per total square foot. You have lined$-$up a $10-$year mortgage financing of $70\%$ LTV at an interest rate of $6\mathrm{.}5\%$ with a $30-$year amortization schedule $($payments calculated monthly but paid annually, for modeling purposes$).$ You have also lined up a $5-$year mezzanine loan $($treat as a second mortgage$)$ for an additional $10\%$ of the purchase price at an interest$-$only rate of $11\mathrm{.}00\%.$ Assume zero transaction costs for the sale$/$disposition of this investment.

Investment Strategy

You are purchasing the building on January $1,2023$ and plan on selling the building at the end of the year $2026.$ You believe your exit capitalization rate will be $75$ basis points lower than your going$-$in capitalization rate.

$1.$ What is your first$-$year NOI? B$.$ What is your purchase price? C$.$ What is the going$-$in capitalization rate $($NOI based$)?$

A$.$ First$-$Year NOI:$**$ $$2,484,250$

B$.$ Purchase Price:$**$ $$41,945,000$

C$.$ Going$-$in Cap Rate:$**5\mathrm{.}92\%$

$2.$ What is the principal amount of your mortgage? B$.$ What is the annual amount of your mortgage loan payment? C$.$ What is the principal amount of your mezzanine loan? D$.$ What isthe annual amount of your mezzanine loan payment? E$.$ What is your total leverage ratio?

Financing:

A$.$ Mortgage Amount: $$29,361,500$

B$.$ Annual Mortgage Payment: $$2,684,148$

C$.$ Mezzanine Amount: $$4,194,500$

D$.$ Annual Mezzanine Payment: $$461,395($interest$-$only$)$

E$.$ Total Leverage Ratio: $80\%$

$3.$ What is the first$-$year cash flow available to the equity investor?

Cash Flow to Equity Investor: $$166,907$

$4.$ A$.$ Assuming that buildings are bought and sold based on NOI, what is the exit price of your investment in December $2026?$ B$.$ What is your loan balance at the time of sale? C$.$ What are your net investment proceeds from this sale?

A$.$ Exit Price: $$45,470,667$

B$.$ Loan Balance at Sale: $$27,620,557$

C$.$Net Investment Proceeds: $$14,491,365$

$5.$ What is the IRR of your equity investment?

$6.$ Assuming that your private equity fund has a hurdle rate of return $($Re$)$ of $15\%,$ what is the PV of this equity investment?

$7.$ What is the NPV of this equity investment?

$8.$ What is the mortgage lender$$s going in DSCR$?$ What is the mortgage lender$$s going

Based on the the prompt and calculations from the questions above, please calculate numbers $5-8$