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<br />ATTACHMENT F
<br />Financial Analysis
<br />
<br />The Pro-Forma for the Paradigm on Pearl (below) shows three key reasons that the project would not be
<br />built without MUPTE. First, the debt coverage ratio (Net Operating Income (NOI) divided by debt
<br />service) is 1.02, below the amount needed to qualify for conventional financing. (The common bank
<br />preference is for 1.25 or higher.) Second, the perceived risk is high demonstrated by the Cash on Cash
<br />return (Cash Flow divided by the equity that is invested by the developer) well below the market-
<br />expected 10% to 15% level. The Cash on Cash only reaches 3% by year 10. Third, the project
<br />valuation is well below the amount needed to qualify for conventional financing. (The value is
<br />determined by NOI divided by the capitalization rate.) At project stabilization, the projected value of
<br />the property is $11.9 million. The total cost of the project is $13.1 million. At 75% loan to value, the
<br />project needs to be valued over $13.3 million to qualify for $10 million in bank debt.
<br />
<br />Sources
<br />
<br />Total Cost
<br />
<br />EQ$ 3,110,00024%
<br />
<br />Conventional Debt$ 10,000,00076%
<br />
<br />Total project$ 13,110,000
<br />
<br />Pro-Forma
<br />
<br />Without MUPTEYear 1Year 2Year 10
<br />
<br />
<br />Rent Income$ 1,214,400$ 1,226,544$ 1,328,171
<br />
<br /> - Vacancy (5%)$ 60,720$ 61,327$ 66,409
<br />
<br />
<br /> = Effective Gross Rent$ 1,153,680$ 1,165,217$ 1,261,763
<br />
<br /> - Operating Exp (25%)$ 288,420 $ 306,636 $ 332,043
<br />
<br /> = NOI$ 865,260 $ 858,581 $ 929,720
<br />
<br />
<br /> - Debt Service$ 848,135 $ 848,135 $ 848,135
<br />
<br /> = CF$ 17,125$ 10,446$ 81,585
<br />
<br />Cash on Cash Return 1%0%3%
<br />
<br />
<br />Value$ 11,935,000$ 11,842,000$ 12,824,000
<br />
<br />dsc 1.02
<br />
<br />
<br />The pro-forma uses conservative assumptions for property value growth and market assumptions for
<br />vacancy and operating expenses. The model assumes that assessed property values increase by 2% per
<br />year. The vacancy rate is assumed at 5% of rental income and operating expenses are estimated at 25%
<br />of rental income, both standard assumptions in financial underwriting. The financial information is
<br />based on projections prior to financing, tenanting, and construction. The cap rate was estimated at
<br />7.25%.
<br />
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<br /> \\Cesrv500\cc support\CMO\2011 Council Agendas\M110509\S1105094and atts A-C and F-G.doc
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