Answer 3-5

1. Alissa Stack has identified an industrial building to purchase to be leased to Jesses Shoes for light manufacturing. She has located a property that Jesses shoes will leased (triple-net) for $2,000,000 per year. She believe she can purchase property for a 6.25% cap rate. What is the price of the of the industrial building? Price of building: Annual leased rent/cap rate 200,000/0.0625= $32,000,000

2. Allisa has 15% in equity. If she can borrower up to $17,600,000 in a first mortgage loan. How much capital does she need to raise in subordinate debt (mezzanine or preferred equity debt structure) dollar and percentage? Amount of debt: price of building (1-equity)-first mortgage loan =[$32,000,000(1-0.15)-$17,600,000 =$27,200,000-$17,600,000 =$9,600,000 Subordinate debt: (9,600,000/32,000,000)*100= 30%

3 . If cap rates shift to 7.0%, what percentage of the value of the building will be levered?

4. With the cap rate increasing to 7.0%, how much of the original equity has been lost both dollar and percentage?

5. The minimum debt yield allowed by the subordinate debt lender is 7.0%. What was the original debt yield on the property?