Calculating Amount Available to Borrow and Amortization Bluestone Office Park generates net annual cash flow of $220,000 in year one. The net annual cash flow is estimated to grow at 5 percent per year over the next ten years. The bank offers a 7 percent interest rate on a 10-

year loan with 25-year amortization. The initial loan amount is subject to the tighter of

(a) 1.1 x coverage test or

(b) 70 percent loan-to-value test.

Assume the property is always valued at 12 x net annual cash flow. How much can be borrowed? What is the actual loan-to-value at the end of year 5 and at the loan’s maturity at the end of year 10?