Maxwell Medical Center

General Description

The Maxwell Medical Center is a 32,000 square foot office building. Analyze cash flows for a 5-year holding period beginning January, 2020. (use Excel)

Inflation

Recoveries and inflation will be calculated on a fiscal basis.

Market: 3.0% every year

General: 3.0% every year

Expense: 3.0% every year

Revenues

All revenues grow with General Inflation rate unless otherwise stated. The annual totals and timing of the revenues are as follows:

Parking: 90,000/Year, which is 100% fixed

Recoverable Operating Expenses

All expenses are 100% fixed unless noted. All expenses grow with Expense inflation rate unless otherwise stated. The annual totals and timing of the expenses are as follows:

Real Estate Taxes: $85,000/Year

Insurance: $29,500/Year

Janitorial: 2.40/SF/Year, 25% fixed

Common Area Maintenance: $0.95/SF/Year

Repairs & Maintenance: $26,280/Year.

Non-Recoverable Operating Expenses

Management Fee: 2% of Rental Revenue.

Capital Expenses

Replacement Reserves: $0.30/SF/Year, 100% fixed, grows with Expense Inflation rate

Rent Roll

All Tenants will have a Contract Lease Status and be an Office Lease Type

Squill Pharmaceuticals

Size: 14,500 SF

Available Date and Start Date: January 1, 2018

Term: 5/0

Base Rent: $20.25/SF/Year

Fixed Steps: Increase by 2.5%/Year

Recovery: $6.50 Stop Amount/Area

Upon Expiration: Renew

The Trepanation Institute.

Size: 9,500 SF

Available Date and Start Date: January 1, 2017

Term: 5/0

Base Rent: $19.00/SF/Year

Fixed Steps: Increase by 2.50%/Year

Recovery: $6.00 Stop Amount/Area

Upon Expiration: Market

Phibes Medical Group

Size: 8,000 SF

Available Date and Start Date: January 1, 2020

Term: 5/0

Base Rent: $21.00/SF/Year

Fixed Steps: Increase by 2.50%/Year

Recovery: Base Year Stop

Upon Expiration: Market

Market Data

Office Profile

Term Lengths: 5/0

Renewal Probability: 80%

Months Vacant: 5 months

New Base Rent: $22.00/SF/Year

Renew Base Rent: $22.00/SF/Year

Fixed Steps: 2.50%/Year

Recovery: Base Year Stop

New Tenant Improvements: $10.00/SF/Year

Renew Tenant Improvements: $5.00/SF/Year

New Leasing Commissions: 20% of First Years Rent - % by Lease Year

Renew Leasing Commissions: 10% of First Years Rent - % by Lease Year

Resale

For resale, capitalize the year of sale at a 6.5% terminal cap. Adjustments for Selling Costs include $25,750 in legal fees and broker fees equal to 2% of the Net Sale Price.

Investment and Valuation

$4,400,000 will be borrowed to purchase the $6,900,000 building. The mortgage will begin on the Analysis Begin Date and amortize for 360 months. The interest rate will be 5.75% and there is an origination fee equal to 1.5% of the initial loan balance. The fee is not included in the loan amount.

Present Value Discounting

Use an annual discount rate of 11.00%.

Hints:

Lease expirations: There are three lease expirations during the 6-years of NOI projections: year 3, year 4 and year 6. Note that Squill renews with 100% probability. This means no vacancy adjustment, but their expense stop will be reset and there will be TI and leasing commissions.

Vacancy adjustments: To determine the vacancy adjustment, determine the expected amount of rent lost for that particular tenant. For example, in year 3, the space currently occupied by the Trepanation Institute is re-leased. If renewed, there is no vacancy adjustment. If the tenant vacates, the space will be vacant for 5 months and occupied for 7 months. The expected vacancy for the space is then .15(5/12). The vacancy adjustment is this amount times the amount of space occupied by the Institute times the rent for that period.