[dreborn]

I am trying to do this Yield Maintenance Problem but I am having issues figuring out how to calcuate the "Net Proceeds" question and below.

I just want to make sure I am on the right track thus far and not making any serious errors.

thanks!

Yield Maintenance Exercise

The Purpose of this exercise is to provide an opportunity for the students to perform the calculations for a simple yield maintenance caluclation within the context of an actual scenario in which refinancing a property with a YM prepayment penanlty might be considered.

The rates provided are deliberately set to return specific results for ease of discussion.

You have a property which requires a $5MM capital improvement in order to stay competitive. The property is burdened with a 10 year loan that was originally $12.5MM at 7.424208% interest payable over a 20 year amortization schedule. There are three years remaining until the maturity date.

The current yield for bonds maturing at the same time as the loan is 4.75754%. Current rates for new loans are 6.73525% with the lower of a 75% LTV or a Debt Service Coverage Ratio of 1.25X and a 30 year amortization schedule.

The Property has an ANOI of $1,700,000. Assume refinacing costs are 3% of the total loan amount.

Please calculate:

The remaining balance of the existing mortgage.

The current annual debt service on the existing loan.

The yield maintenance premium.

The maximum new loan amount.

The new annual debt service .

Net proceeds after the refinancing expenses and the YM premium.

Do you have enough for the capital improvements and what if anything is there to distribute to the investors or reserve for potential cost overruns.

What is the opportunity cost to the property on an annual basis for funding the capital improvements in this way. Provide the $ amount and the % over the improvements cost.

Set up a sensitivity matrix showing the interest rate on the new loan at .25%, 5%, 75% and 1% higher to determine if there will be adequate net proceeds to perform the capital improvements at higher rates.

[dagayle06]

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