CPP Bronco Properties has entered into a purchase agreement on a Class C shoppin
ID: 2633777 • Letter: C
Question
CPP Bronco Properties has entered into a purchase agreement on a Class C shopping center in suburban Pomona, CA. Projected first-year NOI for this center will be $637,500, with a $7.5 million purchase price. CPP Bronco is seeking financing from Student Friendly Bank, which will provide 25-year financing at 7.75 percent interest with a maximum loan-to-value ratio of 80 percent and a minimum debt coverage ratio of 1.25. Based on this information, what is the maximum loan amount Student Friendly Bank will offer on this building?
Explanation / Answer
Based on the loan-to-value ratio: 7,500,000 X 0.80 = $6 million.
Based on the debt-coverage ratio: ADS = NOI / DCR = 637,500 / 1.25 = 510,000.
PMT = 510,000 / 12 = 42,500,
N = 25 X 12 = 300,
I = 7.75,
FV = PV = (5,626,689) = $5.627 million.
The maximum loan Friendly Bank will offer is $5.627 million.