PLE 635 Lecture Notes - Lecture 6: Pro Forma, Sensitivity Analysis, Capitalization Rate
3 Mar 2018
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Permanent loan: takes on the construction. Construction loan: taken out by developer to fund their project, ca(cid:374)"t pay off the loa(cid:374) u(cid:374)til they ha(cid:448)e a cash flo(cid:449). Will take on more debt until they can create cash flow: wo(cid:374)"t e(cid:374)sure loa(cid:374) u(cid:374)less they k(cid:374)o(cid:449) a per(cid:373)a(cid:374)e(cid:374)t loa(cid:374) is li(cid:374)ed up. More realistic representation of financing aspect: loan to cost plus construction financing, ltv, loan supported by noi using debt coverage ratio. Apply ltv to determine the available permanent loan. Scheduled draws, entire amount not provided up-front. Releases are based on achieving certain benchmarks: agreed upon construction schedule, sales, approvals. Calculated as interest only on outstanding balance. Interest states annually, applied monthly: construction costs . 3 million. Interest 6% annually, 0. 42% monthly: equal draws for 12 months. Taking a chance without knowing the outcome. Trying to minimize risk by reducing uncertainty. Investment: employment, discount rate (interest, inflation, risk)
