RCP CASE STUDY

Rawand Dargal Steven Le Carla Merida Scott Nguyen Sumenri Tran

The Problem
The property:

100,000 sq. ft., mixed use office building in Frisco, TX

Must decide whether to continue with the real estate

acquisition. There is currently $300,000 earnest money on the contract Decision must be made by Monday.

Financial Arrangement
Partners usually required RCP to put up 5% equity

The limited partner will provide the remaining 95%

The limited partner will also receive 7% preferred return

on their investment before RCP can receive any returns.

Investors would like to see a 15% IRR over the 5 year

holding period.

Assumptions
All operating cash flows (after debt service and reserves)

would be distributed - first to satisfy the 7% pref to the limited partner (no accrual if insufficient) - next to satisfy a similar 7% return on the equity put up by RCP - then split 70% to limited, 30% to RCP

Assumptions continued
All net proceeds of sale or refinancing event (net of debt

payoff) would be distributed: - first to repay limited partner contribution - next to repay RCP contribution - next, a special distribution to limited partner to true up to a minimum 12% IRR (no similar true up on RCP funds) - then split 70% to limited, 30% to RCP

Projected Revenues

Projected NOI

Loan Options
Loan A Regions Loan B National

Insurance Company
Min Debt Service

Assurance Co.
Min Debt Service

Coverage 1.35 Max LTV 85% Interest Rate: 7.5% Amortization 30 years Term: 10 years Points and closing fees: 2.5% @ closing

Coverage 1.40 Max LTV 75% Interest Rate: 6.5% Amortization 30 years Term: 10 years Points and closing fees: 1.5% @ closing

Cash Flows Loan A

Distributions - Loan A

Cash Flows Loan B

Distributions - Loan B

Loan Decision
Loan A Regions Insurance Co. Partners IRR 15.04% Loan B National Assurance Co. 14.94%

RCP has with experience, known that investors and partners like to see a minimum IRR of 15%.
RCP should choose Regions Insurance Co. loan structure because RCPs partners can receive a 15.04% IRR.

Acquisition Decision
RCP should go forward with the deal with Regions

Insurance Company as their lender.

With their loan structure RCP should be able to attract

partners with the 15.04% IRR.