Your client, Invest Group, requires a 14% rate of return as well as at least $3,000,000 in value enhancement. They are considering some alternatives for an investment property they purchased five years ago. They would like you to perform an analysis of the next five years, assuming a sale at the end of Year 5. The property was purchased based on the following information: 

• Purchase price: $6,000,000 
• Initial loan amount: $5,100,000 
• Interest rate: 9.5% 
• Loan term: 30 years 
• Current (going-in) market cap rate: 8% 
• Going-out capitalization rate: 10.5% 
• Cost of sale: 3.5%.

As-Is (Alternative One) Figures from the Pro Forma Statement include (Year 1):  

• Gross Potential Income (GPI): $2,000,000 

• Based on lease escalations, GPI is expected to increase 5% per year starting next year. 

• Operating Expenses: 1) Heat = $87,350, 2) Electric = $51,775, 3) Water = $75,875, 4) Landscaping = $44,125, 5) Maintenance Labor = $118,750, 6) Insurance = $187,125 7) Real Estate Taxes = $206,000, and 8) Management Fee = 4% of GPI 

• Based on the efficiently run property, expenses are expected to increase by only 2% per year starting next year.

1. What is midstream current equity?
2. What are the before-tax cash flows for the next five years?
3. What are the net sales proceeds at the end of the holding period?
4. What does the T-bar look like?

Answer rating: 100% (QA)

Mid stream current equity represents the equity in a property that has been financed but not yet sol... View the full answer