Based on the case, In re Vanderveer Estates Holding, LLC, the valuation of the Vanderveer commercial real estate property played a central role in the court’s consideration of the plan of reorganization proposed for the apartment buildings and the secured creditors. Von Ancken appraised the properties using the discounted cash flow analysis and arrived at a final estimate of $78.9 million.
What asset value (appraised value of the apartment buildings) would be required to achieve the planned refinancing and payoff of the secured creditors from the refinancing?
Assume that the projections of the net operating income outlined in the court’s opinion are the most credible projections available. However, based on the credibility of conflicting expert testimony, the court determines that a discount rate of 8 percent should be applied rather than 11.5 percent. All other assumptions employed in the valuation model are the same, including (1) 9.5 percent terminal capitalization rate used to calculate the gross reversion, (2) the 4.25 percent transaction cost deducted from the gross reversion, and (3) the $3,158,177 tax benefit net of repair costs. Under this scenario, can the $68 million debt to Vanderveer be paid off by a refinancing at 70 percent loan-to-value? Show your computations in support of your response.