Multi-family cashout refinance (Houston, TX)

[Kat N.]

Hello all, I am reviewing a syndication opportunity where the sponsor strategy is to improve the operations & rent of the current apartment, and cashout refinance in year 3. 

1. The sponsor assumption is to cash out refinance with 30 year loan in year 3, at 4% interest at 75% LTV. I am not familiar with commercial loan. Can someone advise me if this assumption is inline with the market?

2. The current NOI = $111K, and the sponsor is buying at the price $6.5M, so the cap rate is really just about 1.7% ?!?. The sponsor said there are some improvement can be done, and a lot of costs can be reduced, thus, the sponsor is looking to increase NOI to $475K, and cap rate at 6%, thus the value after improvement = $7.9M. (Note this is class C building in Houston, in which cap rate is 6% typically). I am concerned of the acquisition cap rate. Is that typical?

Thanks so much for all insights and advice, 

Kathy