Orangemen Lofts plans to add 300 luxury apartments to its complex in Cohoes. The

Question

Orangemen Lofts plans to add 300 luxury apartments to its complex in Cohoes. The cost of the land now is $16 million including taxes and fees. The construction cost is expected to be $64 million including the cost of the central amenities. The annual maintenance and operating cost is expected to be $450,000. The company also estimates the market value of the property to be 72% of the construction price after 11 years. The average occupancy rate of 88% is expected each year. What is a minimum monthly rent required to make this investment economically acceptable if the company's minimum attractive rate of return is 6% per year, compounded monthly?

Explanation / Answer

Total no. of apartments= 300

Cost of land=$16 million

Construction cost=$64 million

Operating cost=$450000

So minimum monthly rent=$80000000+$450000=80450000

So 80450000*6/100=4827000

For 300 flat= 4827000/300=16090

16090/10=$1609

So the required rent for 6% interest =$1609

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