Alexis Development Corp. was recently given the opportunity to bid on an attractive development site in the financial district in downtown Philadelphia. The executives at Alexis believe there is growing demand for highend office towers due to the growing demand by pharmaceutical companies in the area. The investors at Alexis expect to achieve an 11% return on development projects and do not wish to begin developments if such return cannot be achieved. Doug is the Head of Development at the firm who was given the task of assessing the feasibility of the Alexis Office Tower project.

1. A. )Calculate the expected return on cost (build to return/yield on cost/going in cap rate) for the Alexis Office Tower development project.
2. B.) How can Doug increase the expected return on the site? Give 3 ideas.
3. D.) Given that FAR for this site is 5, how much should Doug be willing to pay per acre of land and still meet the return threshold set by the investors of Alexis Development Corp.?
4. C.) What is the minimum replacement rent per gross SF and per leasable SF that Doug must expect for the development to meet the investors expected return?
5. Does the expected return meet the investors threshold of 11% return on cost?

Below are the cost and income data Doug has collected for the project:

Land costs: $37 per GSF (building gross square foot)

Hard costs: $73 per GSF

Soft costs: $35 per GSF

Total Development cost: $145 per GSF

Rent: $38 per leasable square foot

Operating costs: $12 per GSF

Stabilized occupancy: 94% of leasable square footage

Loss factor: 30% of GSF