RED401-501_F19_Assignment 2&3
Instructions & Details
- Put yourself in the role of an investment analyst at the local private equity firm Iridius Capital. Imagine that your boss, the Chief Operating Officer (and an MRED graduate) has asked that you to help prepare a draft of a loan request as part of the broader acquisition process. The lender here will be CBRE Debt & Structured Finance in Phoenix. Address the loan request to Mr. Michael Kolt, Vice President, Debt & Structured Finance, CBRE Capital Markets. (Mr. Kolt has agreed to review all submissions and will offer feedback based on what he sees, to help guide you moving forward.)
- Using the assumptions provided in the attachment, prepare a two-part memo. In part one, evaluate the attached data to estimate a purchase price for this opportunity. Justify your estimate using relevant data from the market place (e.g., Loopnet, cap rate surveys, etc) and defend it.
- In part two, utilize your estimated purchase price to inform the draft of the loan request. Develop a simple financial model of the opportunity with a 10-year holding period. Communicate the findings of your model using tables of return metrics (cash on cash, debt coverage ratio, and debt yield) and T-charts at the 1) project level, 2) equity level, and 3) lender level. For part two, assume a maximum loan to value ratio of 75%.
- Create a specific section of part two that focuses on your analysis of data from the Federal Reserve Bank of St. Louis and other related sources to estimate the interest rate you believe best matches the project.
- In total, the memo should include an executive summary (summarizing both part one and two) and the following sections:
- Acquisition Price Analysis & Recommendation
- Investment Opportunity & Loan Request
- Financial Analysis & Metrics
- Interest Rate Analysis & Discussion
- Conclusion
- Please accompany your MS Word document submission with the MS Excel workbook showing your calculations and models.
- Please write in complete sentences and DO NOT use the first person.
- Page Range: minimum 6, maximum 10 (1.5 spacing).
- The CBRE loan request template is provided to give you a sense of how the loan officer takes information from your application and places it into their standardized template for discussion and presentation. Please do not replicate this, it is for demonstration purposes only.
Also read: Real estate short essay
Grading
To be eligible for a maximum grade of a B, you must complete 1-9. To be eligible for an A, you are required to include an extra section, extending beyond the page limit (maximum 1 page). This extra section should focus on the role of sustainability within investor demand. Please cite all sources.
Due Date: TBD at 6pm to your drop box on D2L
- Real Estate> management I investment I development I construction
The Place at
Green Trails Apartment Community Living
Katy Texas
A Business Plan Presented by MC Companies
Section I – The Summary
The Property Overview
The Place at Green Trails Apartments is a “Class B” 275-unit community located in Katy, TX. Katy is a suburb approximately 30 miles west of downtown Houston. The property was built in 1982 and features such amenities as a swimming pool, spa, washer/dryer connections, private patios or balconies, outside storage, fireplaces in select units and spacious walk-in closets.
The Place at Green Trails is a distressed asset for sale out of receivership. We believe the property presents a value-add opportunity through renovation and new management. We further discuss the value add components later in the Business Plan.
The Financial Overview
Purchase Price (not including renovations) Closing Costs and renovation costs Total Basis Loan Amount (Assumption) Equity Price per unit (unimproved) Price (improved) Price per square foot (improved) Number of units Estimated Average Annual Cash-on-Cash Return Total estimated 5-Year Deal IRR at a 7.0% cap rate Total estimated 5-Year Limited Partner IRR at a 7.0% cap rate Limited Partner Levered Equity Multiple
* Total equity includes renovation of approximately $1,600,000
$9,000,000 $2,400,000
$11,400,000 $7,200,000 $4,200,000*
$32,727 $41,454
$53.19 275
10.50% 18.24% 15.00%
1.88
The Reasons to Invest
- Bank owned (REO) property being acquired significantly below replacement cost. We have received a preliminary appraisal report with an as-is value of the property equal to $9,600,000. We are purchasing the asset $600,000 below the current appraised value.
- Value will be increased through property renovations and a new management plan • Current management team is operating community at 84% physical occupancy and 68% of
potential revenue • Exceptional below market debt financing • Current Rents are $23/unit per month below comparable properties in the submarket • Ability to generate an additional $25/unit per month with the installation of washers/dryers in each
unit
2010 MC Companies Confidential Page 3 of 18 www.mccompanies.com
The Place at Green Trails
SITE INFORl.1ATION