A 150,000 square foot office building has one tenant who is paying a triple net lease providing a constant rent of $20/sf/year. (Although we have not discussed lease structures in class to date-the concept of triple net is that the tenant pays all operating expenses along with the triple net rent - as a result if triple net rents are $20/sf/year-then there are NO operating expenses paid by the Landlord/Owner - the rent includes payment for operating expenses). The lease has five years before it expires (i.e., assume the next payment comes in one year and there are four more annual payments after that under the present lease.) Triple net rents are increasing at 2.5%/year in this market. In year 6 you will release the building at market rents-BUT: The building will be vacant for 6 months before it is leased to a new tenant. The rental rate that the new tenant will pay in year 6 will be based upon market rents (i.e. $30/sf/year increased by 2.5%/year for five years.) You expect to sell the property at the end of Year 10. The sales price is expected to be a direct cap rate of 10% on the trailing 12 month's NOI of the property. Create an Excel spreadsheet of the cash flows and answer the following questions: What is the going in Direct Cap Rate on current triple net rents (at the time of purchase) if you pay $30 million for this property? What is the IRR for the cash flow stream if you hold this asset for ten years and you paid $30 million for the property