Posted: December 20th, 2014

Real Estate Proforma First Union Bank Complex Case

Real Estate Proforma

First Union Bank Complex Case
Property Information:
Property Name: First Union Bank Complex
Property Type: Office & Retail property
Analysis Start Date: January, 2015
Analysis Period: Five years
Rentable Sq Ft: 65,000
Inflation: The general inflation rate is 3% per year.
Miscellaneous Revenue:
Parking:    Employees in the building must pay for parking. A yearly amount of $9,000 is anticipated. This revenue is 25% fixed. The remaining is variable as per occupancy of the building.
Expense to the Landlord/Owner:
Reserves:        A replacement reserve of $0.22/SF/Yr is required by prospective lenders. The expense is 100% fixed and will not inflate.
Management Fee:   A management fee of 3% of EGI (Net revenues from the three tenants)
Capital Expenditures (Think economic NOI):
Capital Costs: The HVAC system will need to be replaced in Year 3 of the holding period at a cost of $60,000. This amount will not be inflated.
Rent Roll Information:
Name of Tenant:      New England Real Estate
Lease Type:           Office
Lease status:          Contract
Square Footage:       13,000
Start of Lease:        Jan 1, 2015
Term of Lease:        5 years
Rent:                $17/SF/YR
Rent Abatements:      0 months free
Tenant Improve:       $15 per square foot (Year 1)
Leasing Commission:   5% of rent

Name of Tenant:      First Union Bank
Lease Type:           Office
Lease status:          Contract
Square Footage:       30,000
Start of Lease:         Jan 1, 2015
Term of Lease:         8 years
Rent:                Rent will be $16.25/SF.
Rent Abatement:       0 months free
Tenant Improve:       $15 per square foot (Year 1)
Leasing commission:   5% of rent

Name of Tenant:       Italian Pizza Parlor
Lease Type:            Retail
Lease status:           Contract
Square Footage:        15,000
Start of Lease:         January 1, 2015
Term of Lease:         6 years
Rent:                 $20.00/SF/YR
Retail Sales:          Tenant pay 5% of sales over 400/SF/YR sales. Sales volume is 420/SF/Yr. Sales volume is expected to increase at 3% every year.
Reimbursement:       Net lease
Rent Abatement:       Tenant gets 1 month free
Tenant Improve:       None
Leasing Commission:   None

Property Purchase and Resale:
Purchase Price:       $9,000,000
Resale Calculation:    Capitalize the n+1’s NOI
Cap rate:            8.5%
Resale Commissions:  3%
Resale Cap Rate Matrix (For Sensitivity Analysis):
Optimum Case Cap Rate:   8.5%
Worst Case Cap Rate:      10.5%
Best Case Cap Rate:       7.5%
Present Value Determination:
Discount Rate range for sensitivity analysis:  11% to 15 % with increments of 2%
Building to total value ratio: 75%
Tax rates: Assume a marginal income tax rate of 35%, capital gains is 15% and cost recovery tax is 25%
Debt information:
Start Date:        January, 2015
Amortize Start:    January, 2015
Term:           25 years
LTV Ratio:        75%
Interest Rate:      5.5%
Points/Fees:       2 points

Instructions and Deliverables:

1.    A five year pro-forma analysis has to be conducted for this investment

2.    Calculate the NPV, BTIRR, ATIRR and Project IRR for this property

3.    A sensitivity analysis matrix on:
•    Cap rates and Discount rates for impact on NPV, BTIRR, ATIRR and Project IRR

4.    Upload your exam as an excel file on Blackboard. Due date is end of day (11.59 PM PST) Wednesday, December 24, 2014. Only one attempt to upload your final exam excel file is allowed, so take your time to submit the final version

5.    This is an individual assignment, so work like that. If I find out that students have copied the work, they will be penalized on the final, so don’t jeopardize your grade

6.    Explain your variables so that I can understand your analysis

Helpful tips:

1.    For each individual tenant, a cash flow projection till NOI should be worked out in separate sheets. Then they should be consolidated on a master sheet to work further on to get to BTCF and ATCF. This is a better approach as rents and expense reimbursements are different for each tenant. However, the calculations after NOI are common across tenants as they are function of the property

2.    If and only if you are using an assumption on the calculations, please write it down on your sheet

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