You are a Real Estate developer building a small office tower. 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 terms and conditions shown below.

A) Based on the budget, calculate the outstanding 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?

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 distributed 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

PLEASE ANSWER A) and B) ASAP WITH WORK SHOWN CLEANLY