Use Microsoft Excel.

You are a banker structuring a ten year, fixed-interest rate CMBS loan on a trophy office tower in the Plaza District of Manhattan worth $100MM. The borrower is pushing for a first mortgage of 80% loan-to-value. To make it work, you decide to divide the whole loan into a 65% LTV A Note that will be sold in a CMBS Securitization and a B-Note for the remainder of the whole loan that will be placed with an office property REIT investor seeking higher risk / higher investment yields.

On an LTV basis, the B Note represents leverage points from (a) _____% LTV to (b) ____%LTV

The 10 year swap interest rate is 2.77% and, for the whole loan, you want to price in a spread or margin over the swap rate of 183 basis points. What is the overall interest rate coupon youll quote for the whole loan (ie the loan as a whole, in its entirety)? (c) _____%

If you think you can sell the 10-year A Note into a securitization at an interest rate of 10 year Swaps + 115 bps, what will the interest rate be on the B Note assuming the whole loan interest rate is 10 Year Swaps + 183 bps? (d) ____%

For question (d), you may find it helpful to populate this box when backing into the B Note Interest Rate.

	Principal Balance ($s)	Interest Rate / Coupon (%)	Annual Interest ($s) (ignore amortization)
A Note
B Note
Whole Loan

If Vornado REIT, which owns and buys NYC office buildings, is currently paying a dividend yield of 3.49%, do you think they will find the B Note investment attractive? (e) _____ (Yes / No)