Cash Flow Modelling – Accounting and finance Assignment Help<\/p>\n
Assignment Task<\/p>\n
You are a Capital Markets Associate supporting a team of debt origination professionals at a top Debt Advisory firm based in New York City. A borrower has approached your team with a financing request and provided the following information:<\/p>\n
Single tenant office building in downtown NYC
\nTotal area \u2013 250,000 SF
\nCurrently leased at $75.00 PSF per annum NNN with 2 years remaining on the existing lease.
\nCurrent market rents are approximately $85.00psf NNN. Assume the space is released at that rate under the following assumptions:
\n9 months downtime between the current lease of $75psf and the new lease which will be at market or $85psf.
\n10 year lease commences 9 months after expiration of the initial tenant at market rent with a $5.00 step up in lease rate at the end of year 5 of the lease.
\nIn addition to the downtime of 9 months, there is 6 months\u2019 of rent free at beginning of 2nd lease
\nLeasing commission equal to 3% of the total or aggregate amount of rent to be collected over entire lease term. The Leasing commission is paid day 1 of the new lease
\nTenant improvements of $50.00 psf are paid on day 1 of the new lease
\nPurchasing the building today is based on a cap of 5.00% of existing lease net rent.
\nBorrower plans to hold the asset for 10 years and exit at a 4.5?p rate on Year 11 cash flow. Assume selling expenses are 3% of selling price.<\/p>\n
After a few weeks of performing financial analysis and preparing a target list of potential lenders, your team takes the borrower\u2019s offering to market. A week later the borrower receives three financing proposals:<\/p>\n
Option A: 50% LTV @ 2.5% interest only and therefore no amortization<\/p>\n
Option B: 65% LTV @ 3.00%, monthly pay, fully amortizing based on 30-year amortization<\/p>\n
Option C: 75% LTV @ comprising:<\/p>\n
Senior: 65% LTV 3.25%, monthly pay, fully amortizing based on 30-year amortization; and
\nMezzanine: up to 75% LTV 8.00% and no amortization (75% total minus Senior)<\/p>\n
REQUIRED<\/p>\n
What is the borrower\u2019s levered IRR in each case?
\nWhich proposal do you think is more attractive and why?
\nWhat loan terms \/ structural points should the borrower be on the lookout for?<\/p>\n
This Accounting and Finance Assignment<\/p>\n
To determine the borrower’s levered IRR in each case, we need to create a cash flow model.<\/p>\n
First, we need to calculate the net operating income (NOI) of the property.<\/p>\n
NOI = Annual rent * occupancy rate \u2013 operating expenses
\nNOI = $75.00 PSF * 250,000 SF * 0.95 (assuming a 5% vacancy rate) \u2013 operating expenses
\nNOI = $17,437,500<\/p>\n
Next, we need to calculate the cash flows for each financing option.<\/p>\n
Option A:<\/p>\n
Loan amount = 50% * Property value = 50% * ($17,437,500 \/ 5.00%) = $174,375,000
\nAnnual interest payment = $174,375,000 * 2.5% = $4,359,375
\nCash flow = NOI \u2013 interest payment = $17,437,500 – $4,359,375 = $13,078,125
\nLevered IRR = 100 * ((CF \/ Loan amount)^(1\/n) \u2013 1) = 100 * ((13,078,125 \/ 174,375,000)^(1\/10) \u2013 1) = 9.31%<\/p>\n
Option B:<\/p>\n
Loan amount = 65% * Property value = 65% * ($17,437,500 \/ 5.00%) = $227,006,250
\nMonthly payment = $227,006,250 \/ 360 = $630,573
\nCash flow = NOI \u2013 monthly payment * 12 = $17,437,500 – $7,566,876 = $9,870,624
\nLevered IRR = 100 * ((CF \/ Loan amount)^(1\/n) \u2013 1) = 100 * ((9,870,624 \/ 227,006,250)^(1\/10) \u2013 1) = 6.33%<\/p>\n
Option C:<\/p>\n
Senior loan amount = 65% * Property value = 65% * ($17,437,500 \/ 5.00%) = $227,006,250
\nSenior loan monthly payment = $227,006,250 \/ 360 = $630,573
\nSenior loan cash flow = NOI \u2013 senior loan monthly payment * 12 = $17,437,500 – $7,566,876 = $9,870,624
\nMezzanine loan amount = 75% * Property value – Senior loan amount = 75% * ($17,437,500 \/ 5.00%) – $227,006,250 = $1,303,125
\nMezzanine loan cash flow = NOI – mezzanine loan interest payment = $17,437,500 – ($1,303,125 * 8.00%) = $7,440,000
\nTotal cash flow = Senior loan cash flow + mezzanine loan cash flow = $9,870,624 + $7,440,000 = $17,310,624
\nLevered IRR = 100 * ((CF \/ Total loan amount)^(1\/n) \u2013 1) = 100 * ((17,310,624 \/ 228,309,375)^(1\/10) \u2013 1) = 8.38%<\/p>\n
Based on the calculated levered IRRs, option A has the highest IRR at 9.31%, followed by option C at 8.38%, and option B at 6.33%. Therefore, option A appears to be the most attractive proposal for the borrower.<\/p>\n
The borrower should be on the lookout for loan terms and structural points such as prepayment penalties, default clauses, and loan covenants. T<\/p>\n","protected":false},"excerpt":{"rendered":"
Cash Flow Modelling – Accounting and finance Assignment Help Assignment Task You are a Capital Markets Associate supporting a team of debt origination professionals at\u2026<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5616,5610,5241,5243,4206,5239,5612,5240,5615,5617,5608,5618,5613,5609,5242,5244,5614,5611],"tags":[5621,2336,5623,5624,689,4067,1787,5285,5619,5620,5604,5225,5622],"class_list":["post-13776","post","type-post","status-publish","format-standard","hentry","category-can-someone-do-my-homework","category-case-study-answers-examples","category-custom-essay","category-dissertation-topic","category-free-essays","category-help-in-assignment","category-help-of-a-essay-writing-service","category-help-with-class","category-i-need-help-with-my-homework","category-ill-pay-someone-to-do-my-hw","category-online-essay-writing-service","category-order-cheap-essay-online","category-pay-to-write-essay","category-professional-paper-writing-help-service","category-term-paper","category-thesis-writers","category-write-essay-online","category-write-my-essay-for-me-online","tag-app-for-college-students-essays","tag-assignment-helper-for-students","tag-buy-essay-online-from-pro-essay-writers","tag-essay-example","tag-i-need-help-with-my-homework","tag-i-need-help-writing-an-essay","tag-in-a-page-paper","tag-in-a-word-essay","tag-order-an-essay-online-from-top-quality-writers","tag-paper-writing-service-with-good-writers","tag-pay-someone-to-write-my-paper","tag-write-a-page-assignment","tag-write-my-essay-with-top-writers"],"_links":{"self":[{"href":"https:\/\/www.colapapers.com\/uk\/wp-json\/wp\/v2\/posts\/13776","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.colapapers.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.colapapers.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.colapapers.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.colapapers.com\/uk\/wp-json\/wp\/v2\/comments?post=13776"}],"version-history":[{"count":0,"href":"https:\/\/www.colapapers.com\/uk\/wp-json\/wp\/v2\/posts\/13776\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.colapapers.com\/uk\/wp-json\/wp\/v2\/media?parent=13776"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.colapapers.com\/uk\/wp-json\/wp\/v2\/categories?post=13776"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.colapapers.com\/uk\/wp-json\/wp\/v2\/tags?post=13776"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}