(25 points) Estimate replacement cost new given the following information Gross building area 30,000 sqft Height 3 stories Base Building Cost $31 sqft Air filtration system $15 sqft Height multiplier 2 2 Elevator $65,000 (25 points) A new 40,000 sqft office building was just constructed across the street from yours Construction costs were $920,000 Your office building is 35,000 sqft and was built 5 years ago You believe it is accurate to assume that you have used 5 years of the estimated 50 year economic life of the structure The land value of your parcel is $300,000 Using the age life method of depreciation, what is the estimated value of your property (25 points) Investing in a $1,000,000 property today yields cash flows from NOI of $10,000 each year for the next 5 years and an expected sales price of $1,250,000 at the end of the holding period What is the IRR for this investment Partition the IRR and find the percent NOI and the resale price contribute to the overall property value (25 points) Compute the expected return and standard deviation for the following properties Which has the better risk return tradeoff Property A Pessimistic NOI stays flat at $50,000 per year for the next 5 years Resale price is $500,000 in year 5 Probability 25 Most Likely NOI starts at $50,000 the first year and grows by 1 for the next 5 years Resale price is $525,000 in year 5 Probability 50 Optimistic NOI starts at $50,000 the first year and grows by 3 for the next 5 years Resale price is $575,000 in year 5 Probability 25 Property B Pessimistic NOI starts at $50,000 the first year and decreases by 2 for the next 5 years Resale price is $475,000 in year 5 Probability 25 Most Likely NOI starts at $50,000 the first year and grows by 1 for the next 5 years Resale price is $525,000 in year 5 Probability 50 Optimistic NOI starts at $50,000 the first year and grows by 5 for the next 5 years Resale price is $600,000 in year 5 Probability 25

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(25 points) Estimate replacement cost new given the following information. Gross building area = 30,000 sqft Height = 3 stories Base Building Cost = $31/sqft

(25 points) Estimate replacement cost new given the following information.

Gross building area = 30,000 sqft

Height = 3 stories

Base Building Cost = $31/sqft

Air filtration system = $15/sqft

Height multiplier = 2.2

Elevator = $65,000

(25 points) A new 40,000 sqft office building was just constructed across the street from yours. Construction costs were $920,000. Your office building is 35,000 sqft and was built 5 years ago. You believe it is accurate to assume that you have used 5 years of the estimated 50-year economic life of the structure. The land value of your parcel is $300,000. Using the age-life method of depreciation, what is the estimated value of your property?

(25 points) Investing in a $1,000,000 property today yields cash flows from NOI of $10,000 each year for the next 5 years and an expected sales price of $1,250,000 at the end of the holding period.

What is the IRR for this investment?

Partition the IRR and find the percent NOI and the resale price contribute to the overall property value.

(25 points) Compute the expected return and standard deviation for the following properties. Which has the better risk-return tradeoff?

Property A:

Pessimistic: NOI stays flat at $50,000 per year for the next 5 years. Resale price is $500,000 in year 5. Probability = 25%.
Most Likely: NOI starts at $50,000 the first year and grows by 1% for the next 5 years. Resale price is $525,000 in year 5. Probability = 50%.
Optimistic: NOI starts at $50,000 the first year and grows by 3% for the next 5 years. Resale price is $575,000 in year 5. Probability = 25%.

Property B:

Pessimistic: NOI starts at $50,000 the first year and decreases by 2% for the next 5 years. Resale price is $475,000 in year 5. Probability = 25%.
Most Likely: NOI starts at $50,000 the first year and grows by 1% for the next 5 years. Resale price is $525,000 in year 5. Probability = 50%.
Optimistic: NOI starts at $50,000 the first year and grows by 5% for the next 5 years. Resale price is $600,000 in year 5. Probability = 25%.