Unlike residential real estate, commercial real estate's value is based on its income during the investor's...

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Unlike residential real estate, commercial real estate's value is based on its income during the investor's holding period. Based on the information below, use the NPV formula to determine if this is a good investment for the clients. Scenario (fictional): A banker has just received a new loan request from a new entity known as 753 State Street, LLC. This new entity is controlled by current clients of the financial institution and was formed to be an industrial building for investment purposes. The listing price is $5,500,000. The property produces $387,000 each year in net operating income (NOI) that is expected to increase by 3% each year over the next 5 years. The bank will make a loan for the property at 60% LTV for 25 years, fully amortized, at 4%. The bank also requires a 1.5% debt service coverage for this type of loan. At the end of the 5-year NPV analysis, the value of the property will be based on the NOI at that time and the same CAP rate as the purchase price. For your NPV formula, the discount rate is the 4% interest rate. Checklist: 1. Based on the information above, provide the capitalization rate (or yield) required by the seller for the purchase of the property. 2. Using NPV, explain if this is a good deal for the buyer. 3. Explain and support your choice from your response to bulleted checklist item 2, showing the calculations used. Access the Unit 9 Assignment grading rubric. Submit your response in a Microsoft Word document to the Unit 9 Assignment Dropbox. Disclaimer: This exercise may include actual companies and brand names solely for instructional purposes; brand name All trademarke remain the Unlike residential real estate, commercial real estate's value is based on its income during the investor's holding period. Based on the information below, use the NPV formula to determine if this is a good investment for the clients. Scenario (fictional): A banker has just received a new loan request from a new entity known as 753 State Street, LLC. This new entity is controlled by current clients of the financial institution and was formed to be an industrial building for investment purposes. The listing price is $5,500,000. The property produces $387,000 each year in net operating income (NOI) that is expected to increase by 3% each year over the next 5 years. The bank will make a loan for the property at 60% LTV for 25 years, fully amortized, at 4%. The bank also requires a 1.5% debt service coverage for this type of loan. At the end of the 5-year NPV analysis, the value of the property will be based on the NOI at that time and the same CAP rate as the purchase price. For your NPV formula, the discount rate is the 4% interest rate. Checklist: 1. Based on the information above, provide the capitalization rate (or yield) required by the seller for the purchase of the property. 2. Using NPV, explain if this is a good deal for the buyer. 3. Explain and support your choice from your response to bulleted checklist item 2, showing the calculations used. Access the Unit 9 Assignment grading rubric. Submit your response in a Microsoft Word document to the Unit 9 Assignment Dropbox. Disclaimer: This exercise may include actual companies and brand names solely for instructional purposes; brand name All trademarke remain the