Question

Hotel has been in the market for 2 years. Asking price is $8,000,000. Hotel will be renovated, branded- total cost of renovation and to be branded is $11,535.000. They have a lender (Star Bank) willing to provide 50% of the total project cost. They also have another bank (Prize) willing to provide a mezzanine loan for the remaining 15%. Star Bank Terms: Interest Rate: 7% Loan Term: 10 Points: 4 upfront Collateral: Hotel owner by Dean Hotel investements PrizeBank Terms: Interest Rate: 12% Loan Term: 5 Points: 2 upfront Collateral: subordinated claim of the blackstone hotel Calculate the amount of the loan from Prize bank, payment amount and effective interest rate.

Answer 1

Total Rebranding Cost of the hotel is $11,535,000 but the selling price of the hotel was $8,000,000

Prize Bank will fund 15% of (Total Rebranding Costs – Claims of the selling Price of the building), since they were providing the mezzanine financing which gives them claims on the assets of the company, and in this case, the asking pricing of the company was the gaining price for them.

Or, Funding will be = 15%* (11,535,000-8,000,000) = $530,250

Upfront = 2points

Or, Amount Paid initially = $530,250* 2% = $10605

So Interest Payable = ($530250- $10605)*12% = $62357

So effective interest rate = Interest Payable / Total Funding*100= 11.76%

Funding ($)	530,250
Upfront Payment ($)	10605
Interest Payable ($)	62357
Effective Interest Rate (%)	11.76%