Question: Purchase $45,000,000 Office space - Max 60% LTV loan DSCR requirement: 1.3 - Debt Yield Ratio must be above 10% PGI: 15% of acquisition price.

Purchase $45,000,000 Office space - Max 60% LTV loan

DSCR requirement: 1.3 - Debt Yield Ratio must be above 10%

PGI: 15% of acquisition price. Increases at 2% a year for entire hold period

Vacancy: 18% and decreases to 10% yr 2-5

CAPEX: 7% for entire hold period

OPEX: 35% of EGI

WACC: 9.5% - Reinvestment Rate: 13%

Mortgage Rate: 5.25% 5/1 ARM - Mortgage Term: 20 yr.

Closing costs: 2% of L/A- Future Selling costs: 4%

Going in Market Cap rate is 6.48. Going out CAP rate is 6.48

5 Year Hold - Tax rate 20%

Investor requires a Before Tax IRR of 19%

What is the Before Tax IRR?

A.

18.33%
B.

19.46%
C.

17.82%
D.

13.76%

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