Jitrapa Rodjanapattarakul

ID: b00795049
An Apartment Case
Project Background and Information
The analysis involves a real estate investment opportunity in the United State, concerning
the target multifamily 85-unit apartment community located in Southwest Chicago. Surrounded by
restaurant and Marquette Park neighborhood, residence can easily reach California and
Marquette Road public transport hub and numerous dining options within a five-minute walk.
Despite being a vintage building, the apartment was renovated in 2019, and now in an excellent
condition with adding amenities. Key information regarding the property is listed below:
Price $7,650,000 Location 3000-3030 W Marquette
Units 85 Road, Chicago, Illinois
Price per unit $90,000 Property type Multifamily
Building size 53,500 SF Apartment style Mid Rise

This apartment unit provides a strong investment opportunity given its premier location
and the fact that the majority of the units are fully occupied with stable rental cash flow.
Key Investment and Financing Assumptions
The analysis considers two main scenarios which are the buy and sell (with exit) and buy
and hold model. The first scenario primarily assumes that the investor acquires the property,
holds it and earns rental income, then sells the property after a five-year holding period. Another
scenario assumes the investor acquires the property then holds it and receives rental income for
the entire property's useful life (30 years). Also, assuming the investor has to pay approximately
8 percent of the property price as acquisition cost (legal costs, due diligence, administrative and
other closing costs). Assumptions related to both scenarios are summarized below:
Buy and Hold Buy and Sell
Property’s useful life 30 years Entry Date 31-Dec-2021
Target Equity IRR 10% Holding period 5 years
Acquisition Costs 8% acquisition price Exit Cap Rate 7%
Related Selling expense 1% acquisition price

Moreover, we further consider both scenarios with and without leverage. A scenario
without leverage assumes that the investor acquires the property 100% by his equity. While
scenario with leverage assumes the investor could finance part of his investment with a
mortgage loan from the bank, which is a relatively common scenario in practice.
According to the average Loan to Value (LTV) ratio in the U.S. in 2019, it could be
reasonably assumed that an investor can borrow 76 percent of the property value, while the rest
would be financed by the investor’s equity. Assuming that the investor could secure a mortgage
loan at a 5.11 percent annual interest rate with an amortization period of 30 years, and a loan
origination fee of 1 percent of the total loan amount. The key financing assumptions are
summarized below:
Loan to Value ratio 76% Loan Interest Rate 5.11% p.a.
Loan Tenor 30 Years Loan Financing Fee 1% of loan amount
 Jitrapa Rodjanapattarakul
ID: b00795049
Operating Assumptions and Cash Flow Forecast
In terms of operations, majority of the cash inflow is the rent revenue from the current or
future potential tenants. While operating expenses include the property taxes, insurance
expenses, utilities (which could be reimbursed from tenants at certain percentage), property
management fees and replacement reserves for the future maintenance and renovation. Key
assumptions regarding operation and pro-forma are listed below:
Average rent per SF $1.34 Average 92% (increases to 93% from 2022-2026
Occupancy and 94% from 2026 onwards)
Rental Growth Rate 3.5%: 2022-2024, Bad Debt (% 2.5% (2022), 2% (2023-2024), 1.5%
3% onwards of effective onwards
rent)
Utility/unit/month $132
OPEX Growth Rate 3% p.a.

Return
This model considers two main scenarios which are buy and sell (with exit) and buy and
hold model. Then we further consider both scenarios with and without leverage.
Sensitivity Analysis
Investment Risks and Militgations
Risks and Mitigations for Apartment case:

Risks Mitigation

Vacancy risk

Bad debt collection

Buy and Hold Strategy: pros  Reduce transaction cost, take advantage of value growth in real
estate value and own asset free and clear once debt is paid off overtime