Debt Section


Welcome to this video. In this video, I will cover the debt financing section in the Portfolio Model.

The debt financing section consists of three parts – the senior debt, mezzanine, and refinance. The senior debt and mezzanine are the debts taken out to close the deal. Refinance is taken out to replace the senior debt and mezzanine during the holding period. There are 3 reasons to refinance: first, to free up some equity in the deal; Second, the original loan is a bridge loan; Third, to get a better interest rate.

Senior Debt

The senior debt amount is already input in the sources section. The $59.5 million senior debt accounts for 65% of total sources. The debt service consists of interest payment and principal payment. As time goes by, the principal portion goes up and the interest portion goes down in a typical debt amortization. During the interest-only period, the borrower only needs to pay the interest on the outstanding balance for the debt service. This mechanism lessens the borrower’s financial burden, especially when the asset has not reached stabilization right after the acquisition. I will say there is no interest-only period. The amortization schedule is 30 years, which is 360 months. This loan will be fully repaid upon the refinance. The refinance occurs in 60 months, so the term of the senior debt is 60 months. 2.5% for the annual interest rate. I am done with the senior debt assumptions.


Let’s move on to the mezzanine. The $8.5 million mezzanine accounts for 9.3% of total sources. There is no interest-only period. 360-month amortization. Mezzanine’s term will be the same as the senior debt - 60 months. 8% for the interest rate.


Moving on to the refinance. The refinance will occur in five years on Oct 1st, 2026 with a cap rate of 6% and 70% loan to value. 300 months for the amortization. The term of the refinance is calculated as the holding period minus the term of the senior debt and mezzanine. 3% for the interest rate.

I have completed the debt section in the ARGUS Portfolio Model. Thanks for watching this video. I will see you at the next one.