FIN 472 Iowa State University Financing Proposed Projects with Construction Loan Sheet finish the homework please let me know if there is anything question

FIN 472 Iowa State University Financing Proposed Projects with Construction Loan Sheet finish the homework please let me know if there is anything question. This homework is designed to be structurally similar to the Rolling Meadow Center
case as discussed in class. Hence I strongly suggest that, before you start working on this
homework, you shall first watch the lecture video and follow my lecture to replicate the
Rolling Meadow Center pro-form sheet. For the same reason, there is no template specially
offered for this homework, as you can base your work on Rolling Meadow Center case,
subject to some modifications as you see fit. This is part of learning objective, that is, to
learn how to adapt and modify from existing resources as there is no “one template fits all” Woodland Street Office Project
Deadline: Due by 11:59pm on July 20th, 2020
Note: This homework is designed to be structurally similar to the Rolling Meadow Center
case as discussed in class. Hence I strongly suggest that, before you start working on this
homework, you shall first watch the lecture video and follow my lecture to replicate the
Rolling Meadow Center pro-form sheet. For the same reason, there is no template specially
offered for this homework, as you can base your work on Rolling Meadow Center case,
subject to some modifications as you see fit. This is part of learning objective, that is, to
learn how to adapt and modify from existing resources as there is no “one template fits all”.
As the financial advisor for Georgetown Development Co. (GDC), you are responsible for
analyzing the newly proposed Woodland Street Office Project. Your boss has given you the
construction and marketing studies for the project. The plan calls for a construction phase
of one year and an operational phase of five years, after which the property will be sold.
Your boss has informed you that the required return on the project is 15% (after tax).
Part 1: Construction Phase
The marketing staff has found a 2.2 acre site that can be acquired for $412,500. They
have concluded that the 2.2 acre site will provide enough space for the proposed building,
as the site will support an office building with a gross building area (GBA) of 62,000 square
feet. The gross leasable area (GLA) will be 55,800 square feet, giving it a leasable ratio of
90%. The construction division of GDC had told you that they can keep construction hard
costs to $48/square foot (GLA) and soft costs to $5/square foot (GLA) (here $5/sf soft cost
is before including (construction loan) interest carry and all loan fees). The construction
division has also informed you that they will have to spend $100,000 for site improvements
before construction of the office building begins.
Goliath National Bank has agreed to provide the construction loan for the project. The
bank will authorize you to draw funds enough to cover cost on site improvements, all the
hard cost plus eligible soft cost as defined above, i.e., 5$/sf. The construction loan interest
carry will be at an annual rate of 11.5%, plus a loan origination fee of 2 points. The
construction division estimates that 40% of the total direct costs will be taken down evenly
during the first four months, with the remaining 60% of total direct costs being taken down
during the final eight months of the construction phase. Permanent financing for the
project will come at the end of the first year at the amount equal to the ending balance of
the construction loan. GDC plans to obtain permanent financing from Trust Insurance Co. at
an interest rate of 11% with a 3% prepaid loan fee. The loan has a 10 year term and is to be
paid back monthly over a 25-year amortization schedule.
a) Calculate the construction draw schedule. What will the yield to the lender of the
construction loan be? (20 points)
b) Calculate the total direct costs of the project (interpret it as total draw plus loan fees
and construction loan interest carry). (20 points)
c) Create a statement of cash flows for the construction phase. Use this to determine
how much equity is needed to fund the project. The statement of cash flows should
include outflows relate to purchase and improvement of the site, as well as loan fees
and interest. Inflows should include the construction loan. (20 points)
Part 2: Operational Phase
The marketing staff has assured you that office space can be rented out for
$21.50/square foot. In the first year of operation, tenant reimbursements for the project
are expected to be $4.50 per square foot (GLA) and the building is expected to be 70%
leased (70% of leasable area will be leased). After that, vacancies should be 10% of leasable
area. Operating expense in the first year will be $12/square foot. Operating expense, rent,
and tenant reimbursement and expected to increase by 4% each year. The sales price of the
property after the operational phase is expected to be $4,200,000. The project will incur a
sales expense of 3% on the sale of the property. Your boss has informed you that the
relevant marginal and capital gains tax rate for the project is 35%. For depreciation
purposes, assume 90% of depreciable costs are from capital improvements and 10% of
depreciable costs are from tenant improvements. Capital improvements shall be
depreciated over 31.5 years using straight line method, and tenant improvements shall be
depreciated over 7 years by Double Declined Balance method (DDB). (We used DDB
method in Rolling Meadow center case in class. See accounting prep video offered in
Module 1 for details).
d) Calculate the cash flows from operations and sale of the property. (20 points)
e) Combine the cash flows from c) and d) to determine the before-tax IRR, and after tax
IRR and NPV. Should GDC do the Woodland Street Office Project with the after-tax
numbers? (20 points)
Note: No template is provided for this homework as the overall structure of this project is very
similar to the Rolling Meadow Center case that we discussed in Module 3. Hence you can utilize
and modify (if needed) the template provided there.
You can either HIGHLIGHT your answers within your spreadsheet, or to prepare a separate
word document (and submit both the spreadsheet and the word file) to report your answers.
Grading: Although each question is worth 20 points, keep in mind that there can be chain effect
on early mistakes. For example, if you make a mistake in part b, it is likely to affect all of your
subsequent answers. Even if you define everything else correctly, there will still be a partial
grade deduction on later parts as the reported answer won’t be correct. So outcome driven.

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