Real Estate Finance

Posted: August 26th, 2021

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Real Estate Finance

Question 1: Net Operating Income for Oxford Street Development Company

Net Operating Income (NOI) is used in real estate investments to evaluate the profitability of the income generated. It is calculated by obtaining the difference between the revenue generated from the property and operating expenses and vacancy losses. NOI refers to before-tax in the property’s income and cash flow statements. It excludes loan’s interest payments, depreciation, capital expenditures, and amortization. The amount is calculated on an annual basis. It is meant to show the viability of investing in a particular property and the amount of anticipated returns.

Question 1:  Year 6 NOI for Office

The year 6 NOI for office is $ 232,359 (See Excel Calculations).

Question 2: Year 6 NOI for Retail

The year 6 NOI for retail is $ (42,312.00) (See Excel Calculations).

Question 3: Year 6 NOI For Multifamily

The year 6 NOI for multifamily (One Bedroom) is $ 5,344.59 while Multi-family (two Bedroom is $ 9,620.26 (See Excel Calculations).

Question 4: Total NOI forthe Property duringthe Investment Period

The total NOI for the property during the investment period is $ 205,017.00 (Excel Calculations).

Question 5: What Can You Sell The Building For At The End of The Investment Period?

An exit caprate is the reversionary cap rate used in investment property to approximate the gross value of real estate investment. It is given as a percentage of the division between the net operating incomes (NOI) from an investment with the anticipated sales price. Hence, given an exit cap rate of 5% for the multifamily story and 6% for each retail and office, the building can be sold at the following value;

	Total	Exit cap rate
Year	10
NOI on Office	235,534.02	11,776.7
NOI on retail	-47,185.97	-23,59.3
NOI on one bedroom apartments	6,133.04	367.98
NOI on two-bedroom apartments	11,039.46	662.37
Total	205,530.56	10,447.8

ESSAY Question 1:  Should you have changed the allocation of the property types and why? (Half page max)

In the case of space allocation in the property types, I would change the allocation of the types of property in the investment. From the calculation of the expected NOI, the retail property type is not generating any income to the real estate business. Instead, it is only incurring losses for the ten year investment period. This is due to the low retail space sales level, and the high costs of operation as the expenses in the retail are 1.5 times the office type. Hence, the retail type is lowering the profit margin of the company. Therefore, the funds allocated in retail type should be channeled to the office block as it will generate the maximum profits to the company from the expected NOI calculations.

NOI for Multimodal Hub 1

Question 7: What is the NOI in year 5?

The NOI at year five will be equivalent to $ 659,992 (Excel Calculations).

Question 8:  What Is The NOI At Year 7?

At year 7, the NI will be $ 739, 559 (Excel Calculations).

Question 9: How Much Money Will The Bank Lend You?

Initial investment	44373.544
Value of plot	15530.74
Total value	59904.284
LTV (55%)	32947.356
DSC (1.4)	1035382.7

From the table, therefore, the bank will advance $32,947.356, being the lesser of 55% LTV or 1.4x DSC.

Question: 10: What Is The NPV At Your Hurdle Rate?

 , hence the net presentvalue at the hurdle rate is $ 5,620,669.81 (excel calculations)

Question 11: What Is The After-Tax Levered IRR?

Based on the setup, the internal rate of return is equivalent to 18% (IRR= 18%)

Essay Question 2: Should You Buy The Property? (Half Page Max)

As revealed in the analysis, the project seems viable because it assures a positive return. In this case, the property should be adopted since the NPV is greater than the initial investment, and also the project’s IRR is greater than the expected return of 15%.

Question 12 How Much Will The Operating Partner Receive Prior To The Sale?

The total amount received is $ 992,280.00 (See Excel Calculations)

Question 13 How Much Will The Operating Partner Receive From The Sale?

The operating partner receives $ 9,719 (See Excel Calculations).

Question 14. How Much Will The Finance Partner Receive Prior To The Sale? 

Prior to the sale, the finance partner would receive $10, 852,680 (Excel Calculations).

Question 15. How Much Will The Finance Partner Receive From The Sale?

The finance partner will receive $ 38, 878.40 from the sale (Excel Calculations).

Question EC. At What Exit Cap Rate (To One Decimal Place) Does This Investment Begin To Provide Excess Returns?  

Cap rate= NOI/Initial outlay x 100%

Cap rate= 1100000/15000000 x 100%= 7.3%. Hence, the required exit cap rate is 7.3%.