Concordia University John Molson School of Business Practice Problem A real estate developer will build a...

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Concordia University John Molson School of Business Practice Problem A real estate developer will build a warehouse on land it already owns. The project has a total budget of $2,500,000 including interest estimated at $55,000. The expected cash flows are as follows (assume each cash flow occurs at the end of the quarter): Quarter 1 Quarter 2 Quarter 3 Quarter 4 Soft costs Hard costs 400,000 500,000 700,000 745,000 100,000 The lender is willing to provide a construction loan for a maximum of $1,600,000. The interest rate is expected to be 10% throughout the development process and will be capitalized quarterly. a) b) What is the construction loan balance at the end of Quarter 4? If the stabilized NOI at the end of Q4 is $250,000 and comparable cap rates are 10%, calculate the amount the equity investors could withdraw from the project if they secure a mortgage with an LTV of 70%. Concordia University John Molson School of Business Practice Problem A real estate developer will build a warehouse on land it already owns. The project has a total budget of $2,500,000 including interest estimated at $55,000. The expected cash flows are as follows (assume each cash flow occurs at the end of the quarter): Quarter 1 Quarter 2 Quarter 3 Quarter 4 Soft costs Hard costs 400,000 500,000 700,000 745,000 100,000 The lender is willing to provide a construction loan for a maximum of $1,600,000. The interest rate is expected to be 10% throughout the development process and will be capitalized quarterly. a) b) What is the construction loan balance at the end of Quarter 4? If the stabilized NOI at the end of Q4 is $250,000 and comparable cap rates are 10%, calculate the amount the equity investors could withdraw from the project if they secure a mortgage with an LTV of 70%.