Buy Comprehensive Financial Package Assignment

Buy Comprehensive Financial Package Assignment
The purpose of the term project is to provide the student with the experience of preparing a
comprehensive financial package, detailing a potential real estate development. Project data
should be prepared in standard industry format, as is typically required by lenders and investors.
You have decided to buy land with a building shell (fire gutted). The property is located in
Queens, New York, and you plan to demolish the existing building and construct a new building.
Assume you may build a maximum of 98,000 sq. ft.
The development will consist of 90 rental apartments, 50 one-bedroom, 40 two-bedroom, and 2
retail stores.
Retail space comprises no more than 9% of gross rentable square feet.
The cost of the land and shell is $1,000,000 and upon signing the contract you must provide a
Buy Comprehensive Financial Package Assignment
10% deposit. Construction loan will be obtained equal to 90% of total construction costs as
detailed on your Project Costs Schedule. Investors will provide the balance in form of equity.
The permanent loan amount will be calculated at 80% of the property’s value at the end of
construction. The method for valuing the property for permanent loan purposes will be 120% of
the total cost of the property (land and development costs) upon placement in service.
The timetable is as follows:
You have located in completed the underwriting of the property by September 2019.
You report to your equity investors in early October 2019. Soon thereafter you enter into a
contract to purchase the land. You close on the land purchase by November 15th. You arrange
for construction financing and a permanent loan take out commitment over the next 45 days and
you close with the construction lender on December 31, 2019. The permanent loan will close on
December 31, 2020, at the end of the construction.
2020 is construction year
2021 is lease-up year
2022 is stabilization year
2023-2025 are operational years
The property is sold on December 31, 2025 at 8% cap rate, with costs of sales at 5% of gross sale
You have met with a few potential investors and creditors who are interested in this
development opportunity. They have requested that you provide them with the following
Buy Comprehensive Financial Package Assignment
A) A description of the project including a financial analysis, and the proposed deal terms offered to both the investors and the creditors. Be specific as to how much initial equity
and financing is required and be sure equity is available to fund the acquisition of land,
securing a permanent loan commitment (all permanent loan costs should be part of
equity), construction financing and predevelopment costs. Include a schedule of investor
returns and rates of return.
B) A detailed project budget. In spreadsheet format, please detail all costs including land acquisition price and associated costs, pre-development costs, construction costs (hard
and soft), construction period interest (carry), construction period taxes, construction loan
fees. Please provide a time frame for the development. Show all costs in total and per
square foot.
C) A pro forma income and expense analysis for the holding period (after substantial completion). Your analysis should be both pre-tax and after-tax.
D) A discussion of your choice of entity, its tax advantages to investors.
E) The returns (pre-tax and after-tax) that the developer and investors can expect through the end of the deal. Specifically, Cash-On Cash, IRR and NPV – to be detailed within your
spreadsheet work. Use a discount rate of 12% to calculate NPV.
F) Please list all assumptions on a proforma spread sheet and construction draw schedule.
The following assumptions should be incorporated into your project:
1) Closing costs connected with the land purchase will be 6% of the purchase price. Land closing will be prior to the closing of the construction loan. Remember that the total cost
of land and capitalized costs represents part of equity contributions and should be
included in your budget.
2) Total hard construction costs will be $150 per buildable foot (excluding tenant improvements – retail – which will be done by commercial tenants.) $350,000 will be
additional demolition costs (and included in Land costs) Soft costs (not including
construction interest) are calculated at 10% of hard costs. The pre-development costs
which are in addition to all other sq. ft. costs will include:
Engineer, design, architects, fees and costs $500,000
NYC plumbing, water, steam connection permits $ 75,000
Land, soil tests, environmental testing $ 25,000
Total $600,000
Construction period interest must be calculated on a separate draw schedule and shown
as part of the budget.

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