Investment Overview: A client has approached you in search of debt financing to acquire a 100,000 square foot industrial building in a desirable submarket. The newly constructed facility is currently operating at 88% occupancy, with an average triple net lease rate of $9.00 PSF per year. All of the leases in place have 2% annual rent bumps. Annual operating expenses and capital expenses are currently $2.50 PSF and $.20 PSF respectively. Both operating and capital expenses are anticipated to increase by 3% per year in the future. Approximately 95% of the operating expenses can be passed through to the tenants pursuant to the lease terms. The property does not generate any miscellaneous income. The property is being marketed at a price of $7,500,000. Market research indicates it can be sold at the end of a five year holding period at a terminal capitalization rate of 9%, with sale costs equal to 4% of the gross sale proceeds. An appropriate unlevered discount rate over the holding period is 9%. Your client is interested in obtaining debt financing for 60% of the acquisition price with an annual interest rate of 7% and a 25 year amortization period. The ten year treasury rate is currently 5%. Assignment Requirements: 1) Complete a cash flow pro forma for the property appropriate for a 5 year holding period. 2) Calculate the going-in capitalization rate for the investment (using the above-line" treatment of CAPX) based on an acquisition price of $7,500,000. 3) Estimate the value of the property based on a discounted cash flow analysis. 4) What is the debt service coverage (DSC) ratio? Investment Overview: A client has approached you in search of debt financing to acquire a 100,000 square foot industrial building in a desirable submarket. The newly constructed facility is currently operating at 88% occupancy, with an average triple net lease rate of $9.00 PSF per year. All of the leases in place have 2% annual rent bumps. Annual operating expenses and capital expenses are currently $2.50 PSF and $.20 PSF respectively. Both operating and capital expenses are anticipated to increase by 3% per year in the future. Approximately 95% of the operating expenses can be passed through to the tenants pursuant to the lease terms. The property does not generate any miscellaneous income. The property is being marketed at a price of $7,500,000. Market research indicates it can be sold at the end of a five year holding period at a terminal capitalization rate of 9%, with sale costs equal to 4% of the gross sale proceeds. An appropriate unlevered discount rate over the holding period is 9%. Your client is interested in obtaining debt financing for 60% of the acquisition price with an annual interest rate of 7% and a 25 year amortization period. The ten year treasury rate is currently 5%. Assignment Requirements: 1) Complete a cash flow pro forma for the property appropriate for a 5 year holding period. 2) Calculate the going-in capitalization rate for the investment (using the above-line" treatment of CAPX) based on an acquisition price of $7,500,000. 3) Estimate the value of the property based on a discounted cash flow analysis. 4) What is the debt service coverage (DSC) ratio
