You want to purchase an office building in Brooklyn. The property contains 32,100 square feet of...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You want to purchase an office building in Brooklyn. The property contains 32,100 square feet of rentable space and is currently occupied by multiple tenants each with differing maturities on their respective leases. No lease is currently shorter than 1 year. The annual rent in the 1st year of ownership is $45.50/sq ft. The vacancy rate is 15.5%. You expect to incur collection losses (from tenant default) on 5.5% of the square feet during your first year. 1. What is the Potential Gross Income (PGI) for the first year? 2. What is the Effective Gross Income (EGI) for the first year? 3. If operating expenses are expected to be 50% of EGI, what is the Net Operating Income (NOI) generated by the property in the 1st year of ownership? 4. You decide you want to take out a loan to finance the purchase of this property. It will be an IO loan at a rate of 7.25%, compounded annually, with annual payments. The lender will provide financing up to a minimum Debt Service Coverage Ratio (DSCR) of 1.2 based off of the 1st year NOI. What is the largest annual loan payment the lender will allow you to make based on the DSCR? 5. If you get a loan that corresponds to the largest annual loan payment the lender will allow you to make based on the DSCR (computed in part 4), what will be your net income in the first year? 6. What is the largest loan a lender is willing to provide you with based on question 4? (Use the fact that this is an IO loan at 7.25%. Also use the loan payment from question 4.) You want to purchase an office building in Brooklyn. The property contains 32,100 square feet of rentable space and is currently occupied by multiple tenants each with differing maturities on their respective leases. No lease is currently shorter than 1 year. The annual rent in the 1st year of ownership is $45.50/sq ft. The vacancy rate is 15.5%. You expect to incur collection losses (from tenant default) on 5.5% of the square feet during your first year. 1. What is the Potential Gross Income (PGI) for the first year? 2. What is the Effective Gross Income (EGI) for the first year? 3. If operating expenses are expected to be 50% of EGI, what is the Net Operating Income (NOI) generated by the property in the 1st year of ownership? 4. You decide you want to take out a loan to finance the purchase of this property. It will be an IO loan at a rate of 7.25%, compounded annually, with annual payments. The lender will provide financing up to a minimum Debt Service Coverage Ratio (DSCR) of 1.2 based off of the 1st year NOI. What is the largest annual loan payment the lender will allow you to make based on the DSCR? 5. If you get a loan that corresponds to the largest annual loan payment the lender will allow you to make based on the DSCR (computed in part 4), what will be your net income in the first year? 6. What is the largest loan a lender is willing to provide you with based on question 4? (Use the fact that this is an IO loan at 7.25%. Also use the loan payment from question 4.)
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
Calculate the dollar proceeds from the FIs loan portfolio at the end of the year, the return on the FIs loan portfolio, and the net interest margin for the FI if the spot foreign exchange rate has...
-
Shonen Knife Corporation has elected to use the fair value option for one of its notes payable. The note was issued at an effective rate of 11% and has a carrying value of $16,000. At year-end,...
-
1. Do you feel that your population should be limited to a select group of workers such as government employees, hospital workers, teachers, fast-food workers, etc.? 2. What type of sample would you...
-
What are the elements of cost control?
-
Electronics produces video games in three market categories: commercial, home, and miniature. Richardson has traditionally allocated overhead costs to the three products using the companywide...
-
Employees in Qu bec receive both a T 4 and a RL - 1 information slip. Please explain five differences between the two slips.
-
An exponential forecasting method is a time series forecasting method. Group of answer choices True False
-
What steps are necessary before reliable cost estimates can be obtained?
-
Describe the three primary transactions in the operating cycle of a merchandising firm.
-
Explain activity-based management and how it differs from activity-based costing.
-
Describe the differences between (a) a manufacturer, (b) a wholesale distributor, (c) a retailer.
-
Define gross profit on sales.
-
Consumer Reports rated airlines and found that 81% of the flights involved in the study arrived on time (i.e., within 15 minutes of scheduled arrival time). Assuming that the on-time arrival rate is...
-
Does log 81 (2401) = log 3 (7)? Verify the claim algebraically.
-
On December 31, 20x7, the stockholders equity section of Tsang Companys balance sheet appeared as follows: The following are selected transactions involving stockholders equity in 20x8: On January 4,...
-
Recording Purchase and Sales Transactions} Raymond Company and Geeslin Company both use a perpetual inventory system. The following transactions occurred during the month of January: Jan. 1 Raymond...
-
Inventory Costing Methods} Refer to the information for Tyler Company above and assume the company uses a perpetual inventory system. \section*{Required:} Calculate ending inventory and cost of goods...
Study smarter with the SolutionInn App