You want to purchase an office building in Brooklyn. Theproperty contains 32,100 square feet of rentable space and iscurrently occupied by multiple tenants each with differingmaturities on their respective leases. No lease is currentlyshorter than 1 year. The annual rent in the 1st year of ownershipis $37.50/sq ft. The vacancy rate is 5.5%. You expect to incurcollection losses (from tenant default) on 1.5% of the square feetduring your first year. 1. What is the Potential Gross Income (PGI)for the first year? 2. What is the Effective Gross Income (EGI) forthe first year? 3. If operating expenses are expected to be 50% ofEGI, what is the Net Operating Income (NOI) generated by theproperty in the 1st year of ownership? 4. You decide you want totake out a loan to finance the purchase of this property. It willbe an IO loan at a rate of 6.25%, compounded annually, with annualpayments. The lender will provide financing up to a minimum DebtService Coverage Ratio (DSCR) of 1.2 based off of the 1st year NOI.What is the largest annual loan payment the lender will allow youto make based on the DSCR? 5. If you get a loan that corresponds tothe largest annual loan payment the lender will allow you to makebased on the DSCR (computed in part 4), what will be your netincome in the first year? 6. What is the largest loan a lender iswilling to provide you with based on question 4? (Use the fact thatthis is an IO loan at 6.25%. Also use the loan payment fromquestion 4.) 7. The seller’s asking price for the property is$7,000,000. If the lender has a maximum 70% LTV requirement what isthe most the bank will lend you? (Only based on the LTVrequirement.) 8. The loan must satisfy both the minimum DSCR of 1.2and maximum LTV of 70%. What is the biggest loan the borrower canget? 9. If you buy the property at the asking price of $7,000,000using the biggest loan you can get (from question 8), what willyour down payment be? 10. What is the annual mortgage payment onthe loan in question 8? 11. If you buy the property at the askingprice of $7,000,000, what will your ‘going in’ Cap Rate be? 12. Ifthe annual irr for this property is 8.5%, then based on the caprate in question 11, what does this imply is expected NOI growthrate for this property? 13. You do research and find that similarproperties are selling at an 11% cap rate. Using an 11% cap rate,what price would you offer for this property? 14. Suppose you buythe property at the asking price of $7,000,000 and own it forexactly 1 year. You make the down-payment in part (9). You collectthe NOI in part (3). You make the annual mortgage payment in part(10). In two years, the NOI is expected to be the same. You sellthe property at the end of year 1, at a cap rate of 50 basis pointsbelow the cap rate in part (11) and you pay off the loan balancewhen you sell. Compute the IRR on this investment.