Structured Finance – Real Estate Investment

Congratulations on submitting your first round bid! Now for the second round, the seller believes they have an attractive debt instrument or opportunity offered by a bank that they are making available to potential investors. Therefore, they are asking all the participants to “Sharpen their pencils” and submit an updated offer with this debt.
•Debt Quote: You may assume that a fixed rate loan can be obtained at 7% interest (Interest-Only for the entire term) and 65% of assumed LTV [based upon Net Operating Income (NOI) after stabilization].

After discussions with your boss regarding the new piece of debt, you decide your next round offer should be reflective of yields that investors would require for each of the redevelopment scenarios. Therefore, your goal for the next round is the following:
•Re-submit each development scenario (unless at this point via the BOE, you have proven one scenario that makes financial sense and if this is the case submit only one scenario) with the debt information presented above
•Identify the type of investor and required returns that would be required for each redevelopment scenario
•Graphically illustrate the “Capital Stack” for each of these scenarios.

Additionally, the owner of your firm is very interested in winning this project. Therefore, in addition to providing the proposed purchase price, you are asked to present a sensitivity analysis associated with this project. The goal of these sensitives is to determine how risky the project is in relation to the return. He has asked you to run the following sensitives on the project:
•Rent sensitives
•Construction cost sensitives
•Exit cap rate sensitives

NEEDED 1. Development Offer with one scenario that makes sense (3 are presented Class A, Class B and Class Trophy. 2. Identify the type of Investor and the required return see # 1. 3. A graphic – capital stack. 4 a Sensitivity Analysis. 5. Week 3 on excel sheet.

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