Treetop Associated Group (TAG) is seeking financing for acquisition and development of 147 homesites. The land will cost
Posted: Mon May 02, 2022 9:21 am
Treetop Associated Group (TAG) is seeking financing for
acquisition and development of
147 homesites. The land will cost $1.5 million, and TAG
estimates direct development costs to
be an additional $2.7 million. City Federal Bank will make a
loan covering 40 percent of the
land acquisition cost, 100 percent of direct improvement cost,
and interest carry at 11 percent
interest with a 3 percent loan origination fee.
TAG has decided to split the development into two parcel types,
standard and deluxe, with
the standard parcels comprising 87 of the 147 total homesites.
Also, TAG thinks that the deluxe
sites will be priced at a $2,000 premium over the standard
parcel price of $36,000. Total project
revenue will be $5,412,000. After making a 60 percent down
payment for the land and incurring
closing costs of $50,000, TAG believes that the remaining
development costs will be drawn
down at $600,000 a month for the first three months and $300,000
a month for the next three
months. Parcel sales are expected to begin during the fourth
month after closing. TAG estimates
that they will sell three standard parcels and four deluxe
parcels a month for the remainder of
the first year, and five standard parcels and two deluxe parcels
per month for the second year.
The company and the bank have agreed to a repayment schedule
calling for the loan to be
repaid at a rate 20 percent faster than the receipt of sales
revenues; that is, the loan plus interest
carry per parcel will be repaid when approximately 83.33 percent
of all revenues are realized.
Other costs to consider include sales expense (paid quarterly at
a rate of 5% on parcels sold
during the quarter), administrative costs of $7,500 per quarter,
and property taxes of $19,000 at
the end of each year.
Question ?
What will total project costs be? What percentage of
total project costs are being financed?
acquisition and development of
147 homesites. The land will cost $1.5 million, and TAG
estimates direct development costs to
be an additional $2.7 million. City Federal Bank will make a
loan covering 40 percent of the
land acquisition cost, 100 percent of direct improvement cost,
and interest carry at 11 percent
interest with a 3 percent loan origination fee.
TAG has decided to split the development into two parcel types,
standard and deluxe, with
the standard parcels comprising 87 of the 147 total homesites.
Also, TAG thinks that the deluxe
sites will be priced at a $2,000 premium over the standard
parcel price of $36,000. Total project
revenue will be $5,412,000. After making a 60 percent down
payment for the land and incurring
closing costs of $50,000, TAG believes that the remaining
development costs will be drawn
down at $600,000 a month for the first three months and $300,000
a month for the next three
months. Parcel sales are expected to begin during the fourth
month after closing. TAG estimates
that they will sell three standard parcels and four deluxe
parcels a month for the remainder of
the first year, and five standard parcels and two deluxe parcels
per month for the second year.
The company and the bank have agreed to a repayment schedule
calling for the loan to be
repaid at a rate 20 percent faster than the receipt of sales
revenues; that is, the loan plus interest
carry per parcel will be repaid when approximately 83.33 percent
of all revenues are realized.
Other costs to consider include sales expense (paid quarterly at
a rate of 5% on parcels sold
during the quarter), administrative costs of $7,500 per quarter,
and property taxes of $19,000 at
the end of each year.
Question ?
What will total project costs be? What percentage of
total project costs are being financed?