Answer:
<u>Requirement A:</u> CAP Rate is 12.5%
<u>Requirement B:</u> Capitalized Value of the Property is $1,884,960
<u>Requirement C:</u> Loan Amount is $1,413,720
<u>Requirement D:</u> Debt Service Coverage Ratio is 1.85
<u>Requirement E:</u> Loan per unit is $176,715 Per Unit
Explanation:
<u>Requirement A:</u> Find the CAP Rate
The CAP Rate will be calculated using the following formula:
CAP Rate = Annual Net Operating Income (NOI) <u>(Step1)</u> / Property Capitalized Value <u>(Step2)</u>
Here
Operating Income is $235,620 (Step1)
Property Capitalized Value (Step2)
Now, by putting values we have:
CAP Rate = $235,620 / $1,884,960 = 12.5%
<u>Step1:</u> Find Annual Net Operating Income (NOI)
As we know that:
Operating Income = Expected Revenue - Operating Expense
Here
Expected Revenue from 8 Strip Malls = Rent / Month * 12 Months * (1 - Vacancy Ratio) * 8 Strips Malls
= $3,500 * 12 * (1 - 15%) * 8
= $285,600
Operating Expenses = Expected Revenue * 17.5%
= $285,600 * 17.5% = $49,980
Now by putting value in the above Operating Income equation, we have:
Annual Operating Income = $285,600 - $49,980 = $235,620
<u>Step2:</u> Find Property Capitalized Value (It is also <u>Requirement B</u>)
Property Capitalized Value = Annual Operating Income / Minimum Accepted Rate of Return (MARR)
Here
Annual Operating Income is $235,620 from Step1
MARR is 12.5%
By putting values, we have:
Capitalized Value of the Property = $235,620 / 12.5% = $1,884,960
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<u>Requirement C. Find Loan Amount</u>
It is given in the question that the Loan Amount is 75% of Property Capitalized Cost. This implies:
Loan Amount = $1,884,960 * 75% = $1,413,720
<u>Requirement D. Debt Service Coverage Ratio</u>
Debt Service Coverage Ratio (DSCR) = Annual Net Operating Income / Total Debt Service for the Year
Here
Annual Net Operating Income is $235,620 from Step1
Total Debt Service for the Year $127,235 (See <u>Step3</u> below)
By putting values, we have:
Debt Service Coverage Ratio = $235,620 / $127,235 = 1.85
<u>Step3: Total Debt Service for the year</u>
Total Debt Service for the year = Loan Amount * Debt Service Rate
Here
Loan Amount is $1,413,720
Debt Service Rate is 9%
By putting values, we have:
Total Debt Service for the year = $1,413,720 * 9% = $127,235
<u>Requirement E. Find Loan Amount</u>
We can find loan per unit by simply dividing the loan amount by number of strip mall. Here total number of strip mall are 8. This implies that:
Loan Per Unit = $1,413,720 / 8 Units = $176,715 Per Unit
