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 $750,000 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 conditions shown below?

Please make your calculations to the right of the data on this worksheet.

Upload your file onto Moodle by the deadline indicated on the course outline.

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

Leasing commissions

16,000

Other soft costs

195,000

10,986,000

Interest

109,000

TOTAL

11,095,000

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 costs are 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

6.0%

Stabilized NOI at opening

750,000

Comparable cap rates

6.0%

Mortgage loan:

Term (years)

5

Amortization period (years)

20

Mortgage rate

4.0%

Maximum LTV

75.0%

Minimum DSCR

1.25