1. Estimate each propertys current value by calculating the present discounted value of expected future cash flows. The forward-looking cash flows have been provided for you in the spreadsheet template that accompanies this case. The assumptions underlying those projections are as follows:
   1. For Brookline:
      1. Cirano will hold the property another five years.
      2. Operating expenses beginning in 2016 will grow at a 2.24% annual rate, independent of occupancy.
      3. The property will require 17% of NOI to be spend on capital expenditures, in addition to any amounts spent on TIs and broker commissions.
      4. FedEx Ship Center will renew its lease with 75% probability. The lease will run 10 years, require TIs of $12/ft², have a first year rent of $26.95, and contain a 2.24% annual escalation. Should FedEx not renew, the space will remain vacant for one year before being filled by a tenant who will also lease for 10 years, have a first-year rent of $27.49, and have a 2.24% escalation. The new tenant would require TIs of $35/ft². Cirano will have to pay a leasing broker $38,000 upon the signing of a new tenant to a 10-year lease. (If FedEx renews its lease, he will not need a broker.) Regardless of tenant, TIs are paid in 2020.
      5. Tenants under leases will not default during the term of the lease.
   1. For Columbus Festival:
      1. Cirano will hold the property another three years.
      2. Operating expenses beginning in 2016 will increase by 11% due to the addition of a CVS Pharmacy, but will subsequently grow at a 2.24% annual rate, independent of occupancy.
      3. The property will require 23% of NOI to be spent on capital expenditures, in addition to any amounts spent on TIs and broker commissions.
      4. Johnny Bs Dry Cleaners will vacate the property at the end of 2016. That space will remain vacant in 2017, but a new tenant will lease that space for 10 years at $24.50/ft², with a 1.12% annual escalation. The new tenant will require TIs of $30/ft². Cirano will have to pay a leasing broker $26,000 upon the signing of this new tenant. TIs and commissions are paid in 2017, but rent collected under the new lease begins in 2018.
      5. Cirano and the market believes that JC Penney will renew with 90% probability. If it does renew, it will sign another long-term lease beginning at $21.00/ft², with $0.50 increments every five years. If JC Penney does not renew, Cirano thinks the best option would be to lease the space out to a series of seasonal tenants, which would bring in approximately $350,000/year in rental income. The seasonal tenants would reduce the operating expenses of the property by 4% relative to where they would be with JC Penney. Cirano would incur no TI expense with seasonal tenants, but would have to pay a leasing broker $15,000/year to help in acquiring such tenants. He would be unable to find another true anchor for the space during the next several years.
      6. Currently vacant space will remain vacant.
      7. Tenants under leases will not default during the term of the lease.

1. 1. To complete your valuation, you will need to make an exit cap and discount rate assumption. For Columbus Festival, assume that the exit cap rate on the property if JC Penney does not renew would be 0.50% higher than if JC Penney does renew. Do not make any other assumptions.

2. Calculate the maximum amount Cirano can currently borrow for each debt option, making sure to satisfy the LTV and DSCR constraints. For the Brookline property, all lenders agree on the cash flow forecasts. For the Columbus Festival property, Oakwood values the property assuming that JC Penney will renew. Northwood values the property based on expected cash flow.
3. Assuming that Cirano will always borrow the maximum amount, calculate the expected IRR and expected equity multiple to Cirano and to his limited partners under each refinancing offer. How would these metrics change if Cirano sold the properties immediately? Be sure to include all prepayment, yield maintenance, defeasance, and any other fees in your calculations. For your defeasance calculations, assume that the yield curve is flat at 1.5% up to three years maturity. You should calculate these metrics both from inception and from the time of the case.