Question: Need an answer for this question in excel please Suppose you are considering the acquisition of a hotel. The building is currently leased for the
Need an answer for this question in excel please
Suppose you are considering the acquisition of a hotel. The building is currently leased for the next 5 years with annual (year-end) rents of $3,000,000. At the end of the current lease, you expect rents to increase to $3,500,000 (annually) for the foreseeable future. You anticipate selling the property five years from today, and the expected cap rate at that time is 8%. The transaction costs are 5% of the sales price. The market discount rate is currently 10%, but given the uncertainty surrounding future rental rates a 3% risk premium must be added to the discount rate. Your WACC is 10% and the current cap rate is 7.75%. The building to land ratio is 3:1 and the expected life of the property is 39 years. You contacted your banker and got the following underwriting standards: LTV of 80% and DSCR of 1.2. The mortgage loan details are 7.5% 30 years monthly amortizing loan. The tax rates are as follows: 22% income tax, 25% depreciation recapture tax, 20% capital gains tax.
1. What is the market value of this property today?
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