How do I analyze this "stress test"?
Hi guys,

Today in class, we were told to study this stress test from the eyes of a mortgage lender:
http://i.imgur.com/eOjIfoo.jpg?1

I sort of see where it's going at but I can't seem to connect the dots. It's obviously some form of underwriting but I'm not sure. Does anyone have any idea what's going on during this "test"?

Thanks!
[{"id": "cxzoy5g", "text": "It's a two-step stress test. First of all, it's assuming that the shit hits the fan and your NOI goes from 1,800,000 to 1,400,000. what would the value be at the five and three-quarter cap that it is at today. That comes out to about 25 million and change. Second step is assuming the shit hits the fan and Cap rates go up, how does that affect your LTV, and that is the list of cap rates below: if cap rates go up by x, the new value would be y, resulting in an LTV of z. \n\nSorry for barely English, writing/voice recognition on iPad sucks.", "replies": [{"id": "cxzuh2d", "text": "Hmm I see. Thank you. So what would the last column symbolize? \"Remargin amount to bring LTV to 70%\"?", "replies": [{"id": "cxzw4ik", "text": "Remargin is the amount the loan would have to be adjusted to maintain a 70% LTV. LTV = (Loan+Remargin)/Value. In this case, Remargin = -0.7Value - 17,000,000.", "replies": [], "depth": 3}], "depth": 2}, {"id": "cxzvl0b", "text": "Also, at the five and three-quarter cap it's 25 million so what does \"value\" mean again? The loan amount essentially? so they would end up paying 25 mill instead of the original loan amount? ", "replies": [{"id": "cxzwdke", "text": "Value is the amount the building is worth. If the shit hit the fan and the owners had to sell, how much could they get for it? StressedNOI/CAP.\n\nIf this building was just acquired, using a valuation on stabilizedNOI and a 5.75 cap, the value is $31,332,261. The loan amount is never the same as value because every lender is going to require some amount as a down payment (at least 20%). ", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}]