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A lender is giving lending based on income that a property can create.  Given the following conditions,...

  1. A lender is giving lending based on income that a property can create.  Given the following conditions, what is the maximum loan amount that you will be offered?

150,000 SF building that is 70% leased at $18/SF, but $5/SF in operating expenses.  Loan would be at 5% with a 25-year amortization and require a 1.25x debt service coverage ratio.

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Answer #1

Assuming that the building will continue to be 70% leased out

Profit per SF = $18 - $5 = $13 per square feet

Profit for the building per year = 150000 square feet * $13 per square feet * 70% = $1365000

Allowed payment per year = 1365000/1.25 = $1092000

So, assuming the loan at 5% with annual payments of maximum $1092000

Loan = present value of payments

=1092000/0.05*(1-1/1.05^25)

=$15,390,587.47

Maximum Loan amount that will be offered is $15,390,587.47

  

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