Question

You are investing in a strip shopping center at a price of $7,500,000. A 60% loan is available at 7% interest over 17 years, with a 7 year call. Origination fees will total 3%, which you will pay up front. the lender will keep half the fees.

What is you cost of debt (APR)? What is the lenders expected yield (IRR)?

Answer 1

Total investment = $7500,000

loan amount available = $75,00,000* 60% = $45,00,000

Cost of debt = total amount of interest paying on every single debt / total amount of all the debt

that is, interest of $ 45,00,000 * 7% = $ 3,15,000 per year and total amount of debt = $ 45,00,000

therefore, $3,15,000/ $45,00,000 = .07

APR = 7%

INTERNAL RATE OF RETURN ( IRR):

It is generally calculated by an equation 0= NPV =

CF0 = Initial investment

CF1,CF2,CF3.....CFn = cash flows

n = each period

N = Holding period

NPV= net present value

IRR = INTERNAL RATE OF RETURN