Your team has been engaged by a new client, Investments, LLC, to evaluate a potential investment opportunity located on Petaluma, CA. This property is being brokered for sale with an asking price of about $45 million by CBRE Capital Markets Real Estate Investment Group on behalf of Focal Properties, LLC, the original developer of the site. The broker has disclosed to you that Pacific Castle, LLC, has an offer pending on the property for approximately $34 million.
a. Which financing option should Investments, LLC, use if they decide to pursue this investment?
b. What is the expected return to Investments, LLC, both before- and after-tax, and what are the potential variations to these returns?