Wealth Opportunities in Commercial Real Estate: Management, Financing, and Marketing of Investment Properties

Problem Number 2

1. John, Bill, and Fred want to buy a 100,000-square-foot shopping center on Bell Road in Phoenix, Arizona, called the Bell Commerce Shopping Plaza (the “Bell Center” or the “Center”). The three have excellent credit and feel that their collective experience in real estate, in which each complements the other, should allow them to operate the property efficiently and deal with any problems that may arise.

   For the past five years, John has been working for a property management company. He started as an assistant manager and now is in charge of overseeing six shopping centers ranging in size from 50,000 square feet to 500,000 square feet. Bill has also been in the real estate business, employed as a broker leasing retail product that includes everything from small stand-alone storefronts to a large shopping mall. Fred has extensive experience in the finance field. He is currently working as a mortgage broker for a large commercial mortgage brokerage company. Fred has not specialized in one product type, but rather has arranged several loans for clients wherein the debt is secured by a shopping center.

   John, Bill, and Fred discuss the purchase of the Bell Center with the current owner and settle on a $10,000,000 purchase price. Fred, the mortgage broker, figures he can place acquisition financing against the Center at 75 percent LTV, or a $7,500,000 first trust deed. The loan quote was interest-only for the first three years, then a 30-year amortization. The lender ...