REAL 460: Houston Galleria Mall - Real Estate Investments – Accounting and Finance Assignment Help

Assignment Task

You work for the rating agency. The investment banker has provided you with their cash flow underwriting of a commercial loan totaling $1,200,000,000 for the Houston Galleria Mall, a 2.1 million sf super regional mall located in Houston (1.2million sf which is the security for the mortgage). The banker also provided you with a recap of a recent appraisal to support their cash flow presentation.
The loan is 10-year fixed rate, interest only and has a coupon of 3.5498%. Prepayment is closed for the first two years. Thereafter the loan can only be defeased with Treasuries. The loan is open for repayment for the last 90 days without penalty. Attached is his underwriting.
This property is considered a dominant mall in the US. It is anchored by Macy’s and Nordstrom, who own their stores, as well as Saks Fifth Avenue and Neiman Marcus whose stores are on ground leases. The mall’s occupancy has ranged between 92.0% and 95.0% since 2005. Below are your exceptions (haircuts) to the cash flow that that banker has provided you.
A. You have reduced Potential Rent by 1.46% from the banker’s amount.
B. You have increased the banker’s vacancy amount by 1.56%. Both A & B are related to the planned redevelopment.
C. Expense reimbursement increased by .394% for recoveries on vacant units.
D. Based on banker’s pro forma.
E. Applied a 3% haircut to banker’s amount due to success in creating permanent tenants
F. Increased mgmt. fee by 22?sed on receipt of temporary tenant income.
G. Assumptions-4% for new leases, 2% for renewals. Adjust upwards by 5.08 TIMES
H. Based on rating agencies analysis. Adjust downwards by 18%.
I. $.30 psf applied to the mortgage security

A cap rate of 6.00% was applied by the rating agency to their cash flow to determine value. Tranching was based upon the LTVs below

On the day the securities were priced and sold to the investors, underlying treasuries were 1.95% and swap spreads were 25 basis points or .25%. Assume credit spreads for the respective tranches are below:

QUESTIONS
1. What is the Agency’s overall determination of value?
2. What is the tranching of the securitized mortgage loan given the stressed value adjusted thresholds?
3. What are the yields that the securities will offer given the pricing information? NOTE: You can only price the AAA to A.
4. Assume an I/O (“Interest-only certificate”) can offered from the AAA through A classes. This bonds can be offered to investors based upon a 150 basis points over the swap yield. What is the approximate amount of proceeds that can be created the Street.
NOTES: The loan is open for the prepayment for the last 90 days so assume the borrower will refinance and pay off the mortgage then.

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