A Northern California real estate company is considering diversifying its real estate portfolio and buying a 5-year old office building in Upland. It did a thorough study of the market and the leases that are in place. The company estimates that next years net operating income will be $100,000. Its projections allow it to estimate that after the first year the annual net operating income will be rising by $7,000 each year for 6 years, after which it is expected to grow by 8 percent per year for a few years in the foreseeable future. It plans to own the property for 8 years and then sell it at a price determined using information on all applicable (How many from the list below?? Thats something you need to figure out!!) comparable properties terminal cap rates. The chosen comps will all be considered equally important in determining the subject propertys expected terminal value. The company requires a 15% return on this investment. Below is the information on several office buildings with similar features and amenities that recently sold in Upland and surrounding area.

First, under each recently sold building's information put YES if it should be treated as a comp, and NO otherwise.

	Bldg #1	Bldg #2	Bldg #3	Bldg #4	Bldg #5	Bldg #6	Bldg #7
Recent sale price	#1,300,000	$1,000,000	$1,200,000	$900,000	$1,200,000	$1,100,000	$1,000,000
Arm's length transaction?	no	yes	no	yes	yes	yes	yes
1st year NOI	$80,000	$110,000	$120,000	$100,000	$90,000	$120,000	$110,000
Other info	5 years old	13 years old	Previously sold three years ago to its second owner as a 10-year old building	8 years old	Built in October 2007	Will be a 13-year old building in a couple weeks	Twice as old as the subject property
Comp?

If you can, do the math in Excel with correct referencing to cells with intermediate results. This will allow you to avoid rounding errors. Otherwise, increase decimal places - the more the better! Say, 6 or even higher.

Calculate the company's estimated future net operating incomes for the entire holding period. Round to whole dollar. Don't use the "$" sign.

	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8
NOI

Estimated reversion value of the subject property equals $. Round to whole dollar. Don't put "$".

Estimated current value of the subject property is $. Round to whole dollar. Don't put "$".

Estimated going-in cap rate for the subject property is %, assuming it is purchased for no more than what it's worth. Round to 2 decimal places. Don't put "%". E.g., for 1.23% put 1.23.

Estimated going-out cap rate for the subject property is %. Round to 2 decimal places. Don't put "%". E.g., for 1.23% put 1.23.