Sheraton Hotel Redding At Sundial Bridge - Redding Record ...

Our debt coverage ratio falls within the range of 1.3 to 1.7, reflecting the debt
coverage ratios required in the current market. The net proceeds to equity upon
sale of the property were determined by deducting sales expenses (brokerage and
legal fees) and the outstanding mortgage balance.
The equity residual at the end of the tenth year is calculated by deducting
brokerage and legal fees and the mortgage balance from the reversionary value.
The reversionary value is calculated as the eleventh year's net income capitalized
by the terminal capitalization rate. The calculation is shown as follows.
As mentioned, the full reversionary value is calculated by subtracting the
reversionary property taxes and the ground lease payment from the net income in
the 11 th year. This net income is then capitalized by an unloaded terminal
capitalization rate.
Reversionary Value ( $ 2,122,000/0.090)
Less:
Brokerage and Legal Fees
Mortgage Balance
Net Sale Proceeds to Equity
$23,574,000
707,000
8,829,000
$14,038,000
The discount rate (before debt service), the yield to the lender, and the yield to the
equity position have been calculated by computer with the following results.
FIGURE 10-11 TOTAL PROPERTY VALUE AND INTERNAL RATES OF RETURN
Projected Yield
(Internal Rate of Return)
Position Value Over Holding Period
Total Property $17,523,000 11.2 %
Mortgage $11,390,000 6.4
Equity $6,133,000 17.0
Note: Whereas the mortgage constant and value are calculated on the basis
of monthly mortgage payments, the mortgage yield in this proof assumes
single annual payments. As a result, the proof's derived yield may be slightly
less than that actually input.
The position of the total property yield or unleveraged discount rate reflects the
increasing availability and low cost of both debt and equity capital. During the
recent downturn, equity yields increased, reflecting the elevated level of the
perceived risk of the hospitality sector and the uncertainty concerning the length
February-2011 Income Capitalization Approach
Sheraton Hotel Redding At Sundial Bridge – Redding, California 89