number 5

number 5 (Q1-6)

5. Future Projections & Pro-forma Development: You hire a real estate consultant to evaluate how the project will perform moving forward. The consultant subscribes to various databases and periodically consults real estate experts to remain up-to-date with market movements and trends. Here are some numbers they suggest for the first five years: 1. PGI will increase at a modest rate of 5% per year with a strong marketing campaign 2. Operating expenses will increase at 4% per year 3. At the end of five years, the market value will be around 8% cap rate of the following year's NOI (i.e. year 6's NOI divided by a cap rate of 8%)[1]. 4. Selling costs le.g. brokerage) at the end of the fifth year will remain 6% of the sale price Shoreline plans to own and operate this property for five years. At the end of five years, it will sell the property. Therefore, the cash flow for the fifth year will be the sum of the cash flow from operations (rentals) and the cash flow from sale. Based on the information provided above, develop both unleveraged and leveraged cash flow series for Paradise for the five years (in new tab [5]). As a standard practice, yearly cash flows are arranged column-wise. Then: 1. Calculate the unleveraged IRR 2. Calculate the modified or adjusted IRR at 10% 3. Calculate the Profitability Index at 10% 4. Calculate the levered IRR 5. Calculate the NPV of the levered cash flows discounted at the loan interest rate 6. Calculate the NPV of the levered cash flows discounted at both the levered and unlevered IRR ts Unit Type Unit Description Number of Units Area Monthly Rent (sqft per unit) per unit A-1 1 Bd /1Ba 72 688 750 A-2 1 Bd / 1.5 Ba 76 800 850 A-2A 1 Bd / 1B 4 846 915 B-1 1 Bd / 1 Ba +D 24 971 975 ns B-2 2 Bd / 2 Ba 40 1,113 1,080 B-2A 2 Bd /2Ba 1,139 1,100 ve uations B-2B 2 Bd/2Ba 4 1.251 1,190 ex B-3 2 Bd / 2 Ba 36 1,152 1,110 C-1A 3 Bd /2 Ba 3 1,500 1,550 C-1A-Bay 3 Bd / 2 Ba 3 1,668 1,700 C-1B 3 Bd / 2 Ba 3 3 1,511 1,550 Adaltional Revenue Garages: Direct Access 26 garages at $125 per month Assignable 22 garages at $100 per month Detached 36 garages at $75 per month Storage Units: 106 units at $35 per month Carports: 112 carports at $35 per month other: 272 units at $20 per month An overall vacancy rate of 6% is anticipated in all rentable units (including apartm Operating expenses are described as below, on annual basis: Operating Expenses: Per square foot($) Administration 0.12 Ad Valorem Taxes 1.95 Advertising & Promotion 0.17 Insurance 0.25 Repairs & Maintenance 0.39 Management Fee (3.5%) 0.44 Personnel Expense 0.85 Utilities 0.45 Reserves 0.15 5. Future Projections & Pro-forma Development: You hire a real estate consultant to evaluate how the project will perform moving forward. The consultant subscribes to various databases and periodically consults real estate experts to remain up-to-date with market movements and trends. Here are some numbers they suggest for the first five years: 1. PGI will increase at a modest rate of 5% per year with a strong marketing campaign 2. Operating expenses will increase at 4% per year 3. At the end of five years, the market value will be around 8% cap rate of the following year's NOI (i.e. year 6's NOI divided by a cap rate of 8%)[1]. 4. Selling costs le.g. brokerage) at the end of the fifth year will remain 6% of the sale price Shoreline plans to own and operate this property for five years. At the end of five years, it will sell the property. Therefore, the cash flow for the fifth year will be the sum of the cash flow from operations (rentals) and the cash flow from sale. Based on the information provided above, develop both unleveraged and leveraged cash flow series for Paradise for the five years (in new tab [5]). As a standard practice, yearly cash flows are arranged column-wise. Then: 1. Calculate the unleveraged IRR 2. Calculate the modified or adjusted IRR at 10% 3. Calculate the Profitability Index at 10% 4. Calculate the levered IRR 5. Calculate the NPV of the levered cash flows discounted at the loan interest rate 6. Calculate the NPV of the levered cash flows discounted at both the levered and unlevered IRR ts Unit Type Unit Description Number of Units Area Monthly Rent (sqft per unit) per unit A-1 1 Bd /1Ba 72 688 750 A-2 1 Bd / 1.5 Ba 76 800 850 A-2A 1 Bd / 1B 4 846 915 B-1 1 Bd / 1 Ba +D 24 971 975 ns B-2 2 Bd / 2 Ba 40 1,113 1,080 B-2A 2 Bd /2Ba 1,139 1,100 ve uations B-2B 2 Bd/2Ba 4 1.251 1,190 ex B-3 2 Bd / 2 Ba 36 1,152 1,110 C-1A 3 Bd /2 Ba 3 1,500 1,550 C-1A-Bay 3 Bd / 2 Ba 3 1,668 1,700 C-1B 3 Bd / 2 Ba 3 3 1,511 1,550 Adaltional Revenue Garages: Direct Access 26 garages at $125 per month Assignable 22 garages at $100 per month Detached 36 garages at $75 per month Storage Units: 106 units at $35 per month Carports: 112 carports at $35 per month other: 272 units at $20 per month An overall vacancy rate of 6% is anticipated in all rentable units (including apartm Operating expenses are described as below, on annual basis: Operating Expenses: Per square foot($) Administration 0.12 Ad Valorem Taxes 1.95 Advertising & Promotion 0.17 Insurance 0.25 Repairs & Maintenance 0.39 Management Fee (3.5%) 0.44 Personnel Expense 0.85 Utilities 0.45 Reserves 0.15