You are a Real Estate developer building a small office tower in Montreal.The construction will take one year and the units have all been pre-leased. The stabilized NOI at opening will be $720,000 and comparable cap rates are 6%. The construction lender is willing to finance the project based on the terms and conditions shown below.

a) Based on the budget, calculate the oustanding construction loan at the end of the year.

b) How much equity will you be able to withdraw at the end of the construction period if you take-out a mortgage with the terms and consitions shown below?

Development Budget:

Land 2,000,000

Site preparation 250,000

Hard costs 8,000,000

Professional fees 300,000

Permits 75,000

Project management 150,000

Lesing commissions 16,000

Other soft costs 200,000

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Sub Total 10,991,000

Interest 109,000

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TOTAL 11,100,000

Cash flow:

The land is purchased and site preparation occur in the first month.The soft cost (excluding interest) are evenly distributed over the 12 month period.The hard costsare evenly dirtibuted over month 3 to month 12.All cash flows occur at the end of the month.

Construction loan:

LTC 65.0%

Interest rate 5.0%

Stabilized NOI at opening 720,000

Comparable cap rates 6.0%

Mortgage loan:

Term (years) 5

Amortization period (years) 25

Mortgage rate 4.0%

Maximum LTV 75.0%

Minimum DSCR 1.25