Calculate the Leveraged IRR for the following investment in a fully occupied retail center.

Retail center encompasses 75,000 square feet.

Cash available for partner distributions and debt payments per year = $8.00 per square foot. This amount is projected to grow at a rate of 2% per year.

Initial Investment = $6.0 million

Debt Financing = 55% of your initial investment

Debt interest rate is fixed at 8%

Debt is interest only for the first two years, then amortizes an a 25-year amortization schedule.

You analyze your investments assuming a 7-year hold.

You project cap rates for similar retail centers to be 6%. Assume this is your terminal cap rate.

Broker commission and other closing costs are estimated to be 2% of proceeds at time of sale.

Don't forget to pay off the loan in year 7.

If your investors expect a 15% IRR, would they be happy with this investment? What might you do to improve the returns? (Hint:  Think about the capital stack.)

Answer rating: 100% (QA)

ANSWER To calculate the Leveraged Internal Rate of Return IRR for the investment we need to consider the cash flows over the holding period and take into account the debt financing Heres the stepbyste... View the full answer