Common information for the first block of numerical questions in this HW. You want to purchase an office building in Brooklyn. The property contains 27,500 square feet of rentable space and is currently occupied by multiple tenants each with differing maturities on their respective leases. No lease is currently shorter than 1 year. The annual rent in the 1st year of ownership is $42.50/sq ft. The vacancy rate is 6.5%. You expect to incur collection losses (from tenant default) on 1.5% of the square feet during your first year.

Suppose you buy the property at the asking price of $7,000,000 and own it for exactly 1 year. You get the maximum loan you can get that satisfies both the minimum DSCR of 1.2 and maximum LTV of 70% (use your answer in the previous question) and finance the rest with your own money (downpayment that you found in the previous question). In two years, the NOI is expected to be the same. You sell the property at the end of year 1, at a cap rate of 50 basis points below the cap rate at purchase (answer to the previous question) and you pay off the loan balance when you sell. Compute the IRR on this investment.