TriBridge plans to purchase an existing apartment complex called The Standard and needs to run an analysis of the investment. The Standard has 200 units and in-place rents of $2,000 per month per unit. Due to substandard management, the asset is currently 90% occupied. The current annual operating expenses are $1,900,000 per year. Immediately in Year 1, we expect to operate at 95% occupancy during our 5-year investment hold and increase rents by 3.0%, targeting a 60% NOI margin in Year 1 (i.e. the expenses will be different). Assume rents continue to increase at 3.0% while expenses increase by 2.0%. We expect to pay a 5.0% cap rate on current financials (assume purchase price is total capitalization, meaning there are no closing costs or capitalized budgets). Lenders will provide a loan at acquisition that is: 

(1) no more than 65% loan-to-value (LTV);

 (2) has no less than a 9.0% debt yield; and

 (3) has at least a 1.35x debt service coverage ratio (DSCR). 

Assume the debt costs 5.5% per year, is interest-only (i.e. does not amortize), and has a 10-year term. Assuming we sell the property in Year 5 at a 4.75% cap rate (assume no closing costs), please complete the Excel such that the following questions are answered (and please replicate answers below): 

1. What is the expected purchase price?

 2. How much debt can we place on the property? What constrained the loan proceeds? 

3. In Year 3 what are: a. Debt Yield b. DSCR c. Unlevered Yield d. Equity (levered) Yield

 4. What should we expect the sale value to be?

 5. What is the IRR?

 6. What is the investment multiple? 

7. Bonus: please replicate the six answers below if we instead bought the property all cash and added debt in Year 2 using the same loan constraints. Why are IRR and multiple so different?

Answer rating: 100% (QA)

1The expected purchase price is calculated as follows Annual Gross Potential Rent 200 units x 2000mo... View the full answer