Ace Development Company is trying to structure a loan with the First National Bank. Ace...
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Ace Development Company is trying to structure a loan with the First National Bank. Ace would like to purchase a property for $4.25 million. The property is projected to produce a furst year NOI of $185,000. The lender will allow only up to 80% loan on the property and requires a DCR in the first year of at least 1.25. All loan payments are to be made monthly but will increase by 3.5 % at the beginning of each year for 5 years. The contract rate of interest on the loan is 5.5%. The lender is willing to allow the loan to negative amortize; However, the loan will mature at the end of the 5 year period.
Required:
A) What will the balloon payment be at the end of the 5th year?
B) If the property value does not change, what will the loan-to-value ratio be at the end of the 5th year period?
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