Question: You are considering developing a new apartment building with 300 units of 1,000 rentable square feet each. The expected rent is $2.00 per rented sf. per month with a vacancy of 5%and 0.5% bad debt allowance. (Hint: Build a spreadsheet to answer thesequestions.)

1. What is the expected potential gross income (or gross potentialrevenue)?
2. What is the expected effective grossincome?
3. Theoperatingexpensesareprojectedtobe30%oftheeffectivegrossincome.Inapartment buildings,thelandlordsareresponsibleforoperatingexpenses.WhatistheexpectedNOI?
4. The going-out cap rate is 4%. For how much you expected to sell thisbuilding?
5. Thedesignofyourapartmentbuilding impliesanefficiencyof80%.Whatistheestimated gross square footage (gsf) of yourbuilding?
6. The construction hard cost is $175/gsf (including a garage). What is the estimated hard constructioncost?
7. You estimate that soft cost is 10% of hard construction cost and that development contingency is 3% of hard construction cost. What are the estimated soft cost and developmentcontingency?
8. Assumethatthelandcost$10,000,000.Whatisthetotalproject cost(land+hardcost+soft cost + developmentcontingency)?
9. You obtain a construction loan. You borrow 60% of the total project cost at 6% annual interest rate. Assume that your construction loan will have a two-year term and average draw during these two years equal to 65%. What is the estimated construction loan interest?
10. Usingyourprevious answers,whatistheoverall caprate(oryieldoncost)ofyourproject?
11. Assuming that your feasibility criteria is that the spread between the yield on cost and the going-out cap rate is greater than 150 basis points. Is this project economicallyfeasible?