CCP 12-28-1994 - Laserfiche WebLink

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----------- . we have calculated the mortgage constant to be 0.1158. . The 10-year proforma shown on Exhibit II is generally self- explanatory. NOI, or net operating income, is simply that income available after operating expenses and vacancy. Most lenders require a debt service coverage of 120.00% of NOI. As a result, NOI is divided by 1.2 which produces the amount available for debt service. In Exhibit II this amount is $312,337. The debt service is then divided by the mortgage constant to generate the mortgage principal which is shown on the assumptions as $2,697,147. Cash flow is simply the balance remaining after the deduction of debt service from NOI. When the mortgage principal is deducted from the total project costs the balance remaining is the equity contribution; and when cash flow is divided by equity the resulting number provides the cash on cash return, which in Year 1 is shown to be 6.16%. If we assume five year leases, there will not be substantial increases . in revenue until Year 6, which then results in an increase on the cash-an-cash return to 9.85%. The double asterisk at the bottom of the assumptions shows that the average annual cash-on-cash return in this 10-year proforma is 8.00%. While an average annual cash-on-cash return of 8% is not particularly exciting, it is also not discouraging. A number of factors could increase this 8%, such as higher lease revenues, lower Site Costs, lower total project costs, and a lower mortgage rate. Obviously by using more negative assumptions, the return on the project would be most discouraging. Given the assumptions used in this analysis, the Redeveloper is willing to commit to the overall proposal outlined in the December 7 Memo. The level of assistance needed and the Redeveloper's ability to do better than the average annual cash-on-cash return of 8% by reducing the Site Costs is the subject of the next section. 4 .