REAL ESTATE INVESTMENT MIDTERM CASE
You are being asked to determine whether the lender should approve a permanent mortgage loan on the proposed development of an apartment project. Your task is to provide a preliminary analysis of the feasibility of the project (described below), answering the following questions within your report.
(1) What are the strengths and weaknesses of the proposed development, the market, and the project's expected financial performance (e.g., In your view, is there sufficient demand for this project? Does the developer have the needed expertise? Is the location appropriate? Does the project make sense financially from both the developer's and lender's perspectives?)
(2) Construct the expected annual cash flows (pro forma) assuming a 4-year holding period. Assume all development costs take place at the end of year 1; cash flows from operations occur in years 2, 3, and 4; and the property is sold at the end of year 4.
(3) Estimate and report the project's estimated value (PV), NPV, and IRR (both levered and unlevered) using DCF analysis.
(4) Estimate and report the follow key ratios for the project's first year of operations (yr. 2)
a. the implied cap rate, NOI/V, where V is the project's present value estimate from (3) above,
b. the implied cap rate, NOI/V, where V is the cost of developing the project (i.e., the land acquisition and building development costs),
c. the debt coverage ratio, DCR, in yr. 2,
d. the loan-to-value ratio, LTV, in yr. 2,
e. the equity dividend rate, EDR, in yr. 2.
(5) Finally, indicate if the project meets HGA's investment criteria and if you recommend that Commercial Real Estate Capital: (a) approve the application, (b) to reject the application, or (c) should propose a different loan amount?
You should limit your write up to a maximum of five type-written pages. This includes any tables or figures, which if used should be placed within the document, but does not include the title page. You can decide the format you wish to use (e.g., single or double space, font size and font type), but it should be consistent throughout the report.
Assignment Files -
https://www.dropbox.com/s/6z9vhonc2j6biqr/Assignment%20Files.rar?dl=0