real estate

Question #3 Setup:

3. You’re trying to obtain financing for a Restaurant you’re purchasing. The lender has agreed to originate a loan which carries a 7.00% interest rate, a 30-year amortization, and calls for annual (not monthly) payments. Your lender hasn’t mentioned their constraints regarding Debt Service Coverage Ratio, Loan-to-Value, or Loan-to-Cost.

The net operating income for the property is $1.9 million per year.

3(a). What is the Loan Constant for this proposed loan? Round four digits to the right of the decimal (i.e $0.1234). Show the Excel formula you used.

Note: You may want to take 30 seconds to view this tutorial on working with decimal places in Excel:

3(b). What Debt Service Coverage Ratio are you implicitly offering the lender for your proposed $15.4 million loan? Show your work.

3(c). Your lender informs you that they’re willing to accept a Debt Service Coverage Ratio as low as 1.40 (but no lower). Under this constraint what is the maximum loan size? Show your work