Alex Stein's company, Blum Development, is considering developing a 5-story, 250,000 SF state-of-the-art office building in the technology submarket of Austin, TX The property will consist of five 50,000 SF floors. The property will be LEED certified at the gold level with a green roof and photosensitive curtain walls. Blum has an option on the land to purchase the property for $3,000,000. Before Blum exercises the option on the land, Alex has been ask to run a quick "back of the envelope" development analysis for the property. Alex's is very experienced in the Austin, TX market and known that a 10% development yield is needed to take on the development risk. Below are the other assumptions he makes about the market.

Hard construction cost (material and labor) are $100.00/Gross SF (GSF) Soft costs are $13.00/GSF Rents are $35/Leasable SF (LSF) Operating Costs $10/GSF

Alex uses a standard 5% Vacancy Factor and assumes a 25% Loss Factor.

1. Based on the information above, what is the projected development cost for the building?

2. What is projected stabilized NOI per GSF for the building if it is being "built to a 10 cap"?

3. What is the projected GSF rent at the property?

4. What is the projected NOI (GSF) and corresponding development yield at the proposed property

5. Based on the "back of the envelope" analysis does Alex Stein recommend to Blum to exercise the option on the land? Why?

6. What is the replacement rent (LSF) that justifies new development?