Overview

Using the data your Market Study prepare a proforma with a 10-yr cashflow that clearly identifies the revenue and expenses for the project detailed below. In addition to your proforma, prepare a table that illustrates the key financial assumptions (rental rates, vacancy, etc.) you incorporated and the estimated financial metrics you expect from the acquisition.

To bring validity to your results the financial analysis must be based on the data presented in your Market Study. If the base market assumptions differ from your market analysis, you must provide your rational for doing so.

Property Details

The owner of the River Run Village Apartments in Mission Valley is looking to sell their project in an off-market deal. The property is ageing and in need of some significant capital improvements. You have been tasked with underwriting the project and presenting your recommendations to your board of directors.

Your broker has provided you with the following information on the deal: River Run Village:

• 192 Units; 96 1/1s (one-bedroom one bath) and 96 2/1s (two-bedroom one bath) o 1/1 current average rent: $1,325/mo. o 2/1 current average rent: $2,250/mo.

• In place management company charges 5% of GOI for a management fee

• Current contracted services (grounds maintenance, pest control etc.): $21,000/year

• Utilities are billed back to the tenants; CAMs paid by owner: $4,800/year

• Owner will only consider offers at or above $45,000,000 Your investment group has given you the following requirements for their new San Diego portfolio. Triton Capitals Investment Requirements

• Stabilized assets: minimum 6% cash-on-cash yield

• Stabilized assets: minimum 10% levered cash yield

• Projected 10 yr. Terminal IRR of 20% or above

• An estimated 10-yr projected profit (EBITDA) above $50,000,000

10-Yr Cashflow and Proforma

Base Proforma Requirements

You proforma must include the following details:

1. Operational Model Requirements (must be clearly visible in the model)

   • 10-year cash flow detail: capital improvement schedule begins in year 1

   • Development Program: Type, size, rent etc.

   • Base Rent: by unit and SF for residential units

   • Annual Rent Growth: based on local market trends

   • Vacancy assumptions: based on local market trends

   • Operating Expenses: see base assumptions

   • Market cap rate assumptions: see base assumptions

2. Financial analysis Metrics (must be clearly visible in the model)

   • Cash-on-cash annual yield from income: (at stabilization and Yr-10)

   • Levered cash annual yield from income: (at stabilization and Yr-10)

   • Terminal IRR (calculated at year 10 upon sale)

   • Cost Basis Analysis: by (SF) and number of units

   • Net Present Value (NPV) analysis (a.k.a. discounted cash flow)

i. Internal Discount Rate = 7.5%

• Proceeds from sale at year 10

• Net Profit for the total 10-yr holding period

Base Operating & Construction Assumptions

Use the following assumptions to build out the proforma and perform your analysis.

1. Revenue Assumptions: all should be supported and derived from your market study

2. Operating Assumptions

   • Property Tax: Annual tax rate of 1.16967% based off 90% value at stabilization

   • Management fee of 5% of GOI

   • Insurance: annual cost of $285/unit

   • Physical Maintenance & Repairs: $300/unit annually

   • Landscaping & other Services: $21,000/year

   • Common Area Utilities (paid by landlord): $4,800/year

3. Permanent Financing

   • 65% LTV

   • 4.0 % Interest Rate

   • 30-year amortization schedule (balloon payment @ 15 years)

   • 1.5% origination and closing fee

   • Put in place at purchase (renovations to be paid in cash)

Capital Improvement Assumptions

Capital improvements are expected to be paid in cash and take place over three years, expected costs include:

1. Interior renovations, including adding in-unit washer & dryer: $10,000/unit

2. Exterior renovations: $100,000/building

3. Potential conversion of 2/1 to 2/2: $8,000 (in addition to interior renovation costs)

4. Amenity upgrade: $400,000 (pool, club house, gym)

5. Include a 5% contingency on all construction