Fordham University Gabelli School of Business Administration Real Estate Finance B. McCarthy FNBU 3447-E01 Midterm Exam Frank Evans purchased a 250,000 square foot office building in downtown St....

Real estate finance


Fordham University Gabelli School of Business Administration Real Estate FinanceB. McCarthy FNBU 3447-E01Midterm Exam Frank Evans purchased a 250,000 square foot office building in downtown St. Paul, Minnesota on June 1, 2005. At the time of purchase, the building had a Net Operating Income of $2,500,000. Mr Evans was able to obtain a loan with a 7.92% loan constant with a 30 year amortization schedule at the closing of the property. The Annual Debt Service (ADS) for this loan is $1,871,100.00. The loan has a maturity date of May 31, 2015. The loan does not contain a prepayment penalty. Answer the following questions based upon the information above. Show all work. 1. What was the original amount of the loan at time of purchase? 2. Assume the original loan at purchase was 75% of the purchase price, how much equity did Mr. Evans put into the property at closing? 3. Assume that the loan has been in place for four (4) years, what is the loan balance at the end of Year 4? 4. Mr. Evans wants to refinance the existing loan at the end of Year 4. He has been approached by the following three banks offering the following terms and conditions: Bank A: They will refinance the balance of the existing loan at an interest rate of 7.0% interest based on a 25 year amortization schedule. Bank B:They will finance up to the original loan amount at the time of purchase at an interest rate of 7.25% based on a 25 year amortization schedule. Bank C:They will finance up to 80% of the original purchase price at 7.50% based on a 30 year amortization schedule. Calculate the loan constant for each of these loans. 5.Assuming that the NOI has not changed over the years from date of purchase, at the end of Year 5, Mr. Evans wants to maximize his cash flow. Which bank would he choose to refinance the loan with? 6.Mr. Evans intends on selling the building after holding it for ten (10) years. If he wants to build up as much equity as possible, which loan is best suited to meet this goal. 7.Assume Mr. Evans wants to refinance his loan at the end of five (5) years and wants to keep his ADS at $1,871,100.00, based on the interest rates and amortization schedules in Question #4, which bank would give him the most money? Which bank would give him the least money?