Create a 6-year pro forma for a new apartment development based on the following inputs and determine the Levered and Unlevered IRR, the Levered NPV, and Cash-on-Cash Return at stabilization.

36-units Rents in the first year of operations are $2,200 per unit per month

Rents increase 3% each year Construction will take 12 months After construction is complete 6 units will be leased each month until fully occupied (Hint: use this to calculate vacancy in Year 1) Assume 5% vacancy every year once the property is stabilized. (Stabilization is the first year after lease-up is complete.)

Operating expenses will be 35% of EGI for Year 1 and will grow by 3% annually. (Capital reserves are included in operating expenses so there are no additional capital expenses below NOI.) The site can be acquired for $648,000

Hard costs are $190,000 per unit. Soft costs (including all lending fees, reserves, and carried interest) are 15% of hard costs.

The lender will provide an interest only construction loan for 65% of the total cost of development including acquisition (Loan-to-Cost). The interest rate will be 6.5%. (Since carried interest during construction is included in soft costs, debt service for this loan should start in Year 1.) Once the property is stabilized, the developer will convert the construction loan to a permanent loan at a 6.0% interest rate and 20-year amortization.

The property will be sold at the end of Year 6 with an exit cap rate of 7.25% and 4% cost of sale. Required Levered Yield is 15%. Required Unlevered Yield is 10%.