A lender bank has agreed senior debt terms to a client at a loan to value...

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A lender bank has agreed senior debt terms to a client at a loan to value ratio of 50% to part finance a value-added real estate investment, which has some initial vacancy and is expected to be fully let in year 4, at which time it will be sold. The clients after senior debt net cash flow is shown below. After Senior Debt only Net Cash Flows Year 0 Year 1 Year 2 Year 3 Year 4 -6,100,000 71,464 113,921 152,251 9,697,462 DSCR (Before Capex) 1.55 1.67 1.79 1.95 You have been asked by the client to look at the potential to increase the debt facility further, by including a lookback mezzanine structure. Current mezzanine providers for this type of asset look for a minimum 10% IRR exclusive of fees, but the facility must be cash flow positive out of operating cash flows, after applying the mezzanine finance structure. You are required to: a) Propose terms you would recommend for the mezzanine piece sufficient to meet the client's minimum required rate of return of 14.50%. b) Show the client's 4 year cash flow after adding in the mezzanine piece and also show the mezzanine provider's 4 year cashflow, ensuring you fully explain all your inputs and calculations. c) If the client now required a minimum geared return of 15% and the mezzanine facility must remain cash flow positive out of operating cash flows, explain how the senior and mezz lending structure might be modified to provide an equitable outcome? A lender bank has agreed senior debt terms to a client at a loan to value ratio of 50% to part finance a value-added real estate investment, which has some initial vacancy and is expected to be fully let in year 4, at which time it will be sold. The clients after senior debt net cash flow is shown below. After Senior Debt only Net Cash Flows Year 0 Year 1 Year 2 Year 3 Year 4 -6,100,000 71,464 113,921 152,251 9,697,462 DSCR (Before Capex) 1.55 1.67 1.79 1.95 You have been asked by the client to look at the potential to increase the debt facility further, by including a lookback mezzanine structure. Current mezzanine providers for this type of asset look for a minimum 10% IRR exclusive of fees, but the facility must be cash flow positive out of operating cash flows, after applying the mezzanine finance structure. You are required to: a) Propose terms you would recommend for the mezzanine piece sufficient to meet the client's minimum required rate of return of 14.50%. b) Show the client's 4 year cash flow after adding in the mezzanine piece and also show the mezzanine provider's 4 year cashflow, ensuring you fully explain all your inputs and calculations. c) If the client now required a minimum geared return of 15% and the mezzanine facility must remain cash flow positive out of operating cash flows, explain how the senior and mezz lending structure might be modified to provide an equitable outcome?