You purchase a retail center for $$12,500,000$ and are able to obtain a $65\%$ LTV loan with a fixed rate, $10$ year term, and a $30$ year amortization term. The rate is based on the SOFR index $(3\mathrm{.}25\%)$ and a risk premium $(2\mathrm{.}50\%).$ Assume that no NOI is generated over the hold period.

What results in a higher IRR: $(1)$ sale at end of year $5$ for $$12,500,000$ or $(2)$ sale at end of loan for $$12,500,000?$ Selling costs are $2\%$ of the sale price.

What is the major reason causing the difference in IRRs?