• What is the maximum possible amount of the permanent loan arranged at month 12 on the basis of both DCR and LTV criteria?
• Using variable Y, write a mathematical expression for the amount of construction loan outstanding (principal and accrued interests) at month 12.[1]
• The amount of the construction loan outstanding (answer to b) has to be less than or equal to the maximum amount of the permanent loan (answer to a). How much equity does the developer need to invest?

[1] e.g., If a $100 draw was made 5 months ago for a loan with a 2% monthly interest rate, the sum of principal and accrued interests after 5 months is .

1. At month 0, a developer starts an 80 million dollar, 12-month, construction project. The developer pays $40M at the beginning (month 0) and another $40M at month 6. The first $40M payment is financed by the developer's $X million equity and a $Y million construction loan at 8% interest rate (per annum) 1. The second $40M payment is financed by another draw of the construction loan at the same rate. Thus, the total principal of the construction loan is $(Y+40) million. The construction loan interests are accrued monthly for each draw. At the completion in month 12, the construction loan will be refinanced with a 7% IO permanent loan with annual payments. The permanent loan origination criteria are 70% initial LTV and 1.3 initial DSCR. The property generates NOI once every year starting with $6M at month 24. The property is going to be valued at a 6% cap rate. The project is summarized as follows. Month 0 $X m equity& $Y m loan $40M costs Month 6 $40M loan $40M costs Month 12 The construction loan with accrued interests are refinanced with a permanent loan Month 24 NOI = 6M First debt service is made. Compute the minimum required amount of equity X by following the next steps. a) What is the maximum possible amount of the permanent loan arranged at month 12 on the basis of both DCR and LTV criteria? b) Using variable Y, write a mathematical expression for the amount of construction loan outstanding (principal and accrued interests) at month 12. 2 c) The amount of the construction loan outstanding (answer to b) has to be less than or equal to the maximum amount of the permanent loan (answer to a). How much equity does the developer need to invest? 1 e.g., If an interest rate is expressed as \"12% per annum with monthly compounding,\" the borrower makes a 1% monthly interest payment (12% / 12 = 1%). 2 e.g., If a $100 draw was made 5 months ago for a loan with a 2% monthly interest rate, the sum of principal and accrued interests after 5 months is 100 ( 1+0.02 )5 . Page 1 of 1