Objective:
Judy and John DeRight is interested in real estate and would like to seek financial advice from their family financial advisor Angus Cartwright. Judy DeRight as the president and sole stockholder of a small-sized chemical company is at the peak of her career and would like to invest part of the 45 million dollars which she accumulated from equity and fixed income security over the years into real estate as an attempt to diversify her portfolio. Earning a steady cash flow of 2.1 million annually for the past five years from her company, Judy is ambitious and by having a greater risk tolerance she is interested in property with great future value. Unlike Judy, John DeRight is in his retirement and has sold his business to a medium sized public company and acquires over $35 million in stock of that company. Although he is expected to have a steady income stream of $1 million from dividend and other income …show more content…
Complete in 2010, with a 95% occupancy level the property selling price is at $15 million dollars. Cartwright is able to get a $12.125 million commercial mortgage backed security at 4.75% interest rate. CMBS loan has the advantage of protecting the buyer in case of default where the lender can’t go after the buyer’s other personal asset. However, the limited liability comes with a cost of a 4.75 interest rate which is the highest rate among all the property. On the other hand, it provides one of the weakest after tax cash flow of $211 thousand dollars on average, which directly impacted the break even occupancy and debt coverage ratio to 82.89% and 1.25 which barely meet the standard of 1.2 and signify higher level of risk when compares with other property. Projected to have a selling price of $17 million dollars, the 900 Stony Walk yield an IRR of 15.1% which met the DeRight’s investment objective of a minimum leveraged return of
Judy and John DeRight is interested in real estate and would like to seek financial advice from their family financial advisor Angus Cartwright. Judy DeRight as the president and sole stockholder of a small-sized chemical company is at the peak of her career and would like to invest part of the 45 million dollars which she accumulated from equity and fixed income security over the years into real estate as an attempt to diversify her portfolio. Earning a steady cash flow of 2.1 million annually for the past five years from her company, Judy is ambitious and by having a greater risk tolerance she is interested in property with great future value. Unlike Judy, John DeRight is in his retirement and has sold his business to a medium sized public company and acquires over $35 million in stock of that company. Although he is expected to have a steady income stream of $1 million from dividend and other income …show more content…
Complete in 2010, with a 95% occupancy level the property selling price is at $15 million dollars. Cartwright is able to get a $12.125 million commercial mortgage backed security at 4.75% interest rate. CMBS loan has the advantage of protecting the buyer in case of default where the lender can’t go after the buyer’s other personal asset. However, the limited liability comes with a cost of a 4.75 interest rate which is the highest rate among all the property. On the other hand, it provides one of the weakest after tax cash flow of $211 thousand dollars on average, which directly impacted the break even occupancy and debt coverage ratio to 82.89% and 1.25 which barely meet the standard of 1.2 and signify higher level of risk when compares with other property. Projected to have a selling price of $17 million dollars, the 900 Stony Walk yield an IRR of 15.1% which met the DeRight’s investment objective of a minimum leveraged return of