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Name: Class: R305/F560: Fall 2021 Valuation Practice Problems This assignment is worth 60 total points. The points assigned to each question is noted with the question. You must show all your work to receive full points (if you use Excel or Google sheets, please submit your spreadsheet as well). Question 1 (15 points) Complete a cost approach valuation using the following information: The subject is a 312,000 SF warehouse building (3% of the total square footage has office build-out). The property has a 780,000 SF parking lot on a 28.70-acre lot. Land values in the area are $2.25/SF (remember, there are 43,560 SF in an acre). Building hard costs = $43.00/SF for warehouse building construction and $48/SF for interior office build-out (so, a total of $91/SF for the portion of the building that has office build out) Parking lot costs = $4.25/SF Soft costs = 7% Entrepreneurial incentive = 12% Effective age: 8 years Economic life: 45 years Round your answer to the nearest $10,000. Present the final value in whole dollars and $/SF. Your answer: Question 2 (20 points) Complete a sales comparison approach using the following information and data: . . In your adjustment grid on the following page, round all adjustments to the nearest percentage. Include a + or - to indicate the direction of each adjustment. Make the market conditions adjustment first and independent of all other adjustments. At the end, add together the location/physical adjustments because they are cumulative (don't forget to consider the direction of adjustments). Not all items will require adjustment. Remember, comparables are adjusted to the subject, so a superior characteristic would be adjusted downward, and an inferior characteristic would be adjusted upward. . . Subject property 312,000 SF warehouse Sales A-D are all warehouses. . Market conditions adjustment Market conditions adjustments are applied before all the other adjustments, after which you should calculate a semi-adjusted $/SF before proceeding with the location/physical adjustments. Market conditions were stable from late 2019 until July 2020, when market conditions improved 30% due to demand for warehouse space for e-commerce. These conditions still exist today, in October 2021. Sales that took place prior to July 2020 sold during inferior market conditions. . . Location adjustment Whitestown is considered to be 10% superior to Indianapolis. Greenwood is considered to be 15% inferior to Whitestown. Plainfield is considered to be 10% inferior to Whitestown. . . Size adjustment Buildings in this market require a 1.5% adjustment per 10,000 SF of difference. Smaller buildings are considered superior, and larger buildings are considered inferior. Age/condition adjustment An adjustment for age is 2% per year of difference. Older buildings are considered inferior, and newer buildings are considered superior. Remember the market conditions adjustment is performed prior to location/physical adjustments. Location/physical adjustments are added up and can net each other out. Last, present the range of adjusted $/SF and the indicated range of values in whole dollars, rounded to the nearest $10,000 for the subject building. Your answer: SHOW ALL ADJUSTMENTS AS PERCENTAGE WITH + or - TO INDICATE DIRECTION OF ADJUSTMENT. Sale C June 2020 Sale D July 2021 Date of sale Subject Date of value: October 2021 Indianapolis 312,000 SF Sale A Sale B April 2021 November 2019 Whitestown Greenwood 255,000 SF 359,000 SF 2 years $26,775,000 $21,181,000 $105 $59 Transactional Adjustments Location Size Effective Age Sale Price Sale Price/SF Plainfield 212,000 SF 8 years 1 year Indianapolis 470,000 SF 14 years $18,800,000 $40 10 years N/A $17,596,000 $83 N/A N/A Market conditions Semi-Adjusted $/SF (Sale price/SF after market conditions adjustment) Location/Physical Adjustments Location Size Age Net physical/location adjustments Adjusted $/SF N/A N/A N/A N/A N/A Resulting (low to high) range of $/SF values for subject: Resulting (low to high) range of whole dollar values for subject: O Question 3 (20 points) Construct an income proforma operating statement using the following information. Show the following: PGI (rental income and other income itemized), shown in whole dollars and $/SF o Vacancy & collection loss, shown in whole dollars and as a percentage o EGI, shown in whole dollars and $/SF o Operating expenses, shown in whole dollars and $/SF o OER, shown as a percentage o NOI, shown in whole dollars and $/SF Subject: 312,000 SF warehouse Income: Market rent is $7.25/SF with industrial gross terms. Industrial gross in this market means the landlord pays for taxes, insurance, common area maintenance (CAM), management, and replacement reserves. The property receives other income from leasing trailer parking spaces. They currently lease 40 spaces for $80/month. . Vacancy and collection loss: Market vacancy in this market is 2.5%. Market collection loss is 0.25%. . 0 . Operating expenses: Insurance: $0.12/SF Real estate taxes: $2.20/SF CAM: $0.25/SF Management fee: 4% of EGI Replacement reserves: Based on a sinking fund factor for $3.50/SF for 4 years in an interest- bearing account with a rate of 3% (annual compounding). . . Your answer: Question 4 (5 points) Develop a range of market cap rates through market extraction using the following data. Then, using the net operating income from question 3 and the range of cap rates you have calculated, present a range of applicable values for the property using the direct capitalization technique. NOI Sale A $1,251,000 $26,775,000 Sale B $1,015,000 $21,181,000 Sale C $889,000 $18,800,000 Sale D $844,000 $17,596,000 Sale price Cap rate Your answer: Resulting (low to high) range of cap rates: Resulting (low to high) range of whole dollar values for subject: Resulting (low to high) range of $/SF values for subject: Bonus question 1 (5 bonus points) Thinking back to highest and best use analysis, what does the difference between the value from your cost approach and the value from the income and sales approaches indicate about the subject property? Your answer: Bonus question 2 (7.5 bonus points) Your client asks you to indicate a cap rate for the subject property using the band-of-investments technique, using the following parameters: 80% loan-to-value ratio 3.5% interest rate (monthly compounding) 30-year amortization 8% equity dividend rate . What is your cap rate indicated by this technique? Using the NOI from question 3, what would that indicate is the value of the subject property (rounded to the nearest $10,000)? Your answer Bonus question 3 (7.5 bonus points) Your client asks you to indicate a cap rate for the subject property using the DCR technique, using the following parameters: 80% loan-to-value ratio 3.5% interest rate (monthly compounding) 30-year amortization 1.15x DCR . . What is your cap rate indicated by this technique? Using the NOI from question 3, what would that indicate is the value of the subject property (rounded to the nearest $10,000)? Your answer: Name: Class: R305/F560: Fall 2021 Valuation Practice Problems This assignment is worth 60 total points. The points assigned to each question is noted with the question. You must show all your work to receive full points (if you use Excel or Google sheets, please submit your spreadsheet as well). Question 1 (15 points) Complete a cost approach valuation using the following information: The subject is a 312,000 SF warehouse building (3% of the total square footage has office build-out). The property has a 780,000 SF parking lot on a 28.70-acre lot. Land values in the area are $2.25/SF (remember, there are 43,560 SF in an acre). Building hard costs = $43.00/SF for warehouse building construction and $48/SF for interior office build-out (so, a total of $91/SF for the portion of the building that has office build out) Parking lot costs = $4.25/SF Soft costs = 7% Entrepreneurial incentive = 12% Effective age: 8 years Economic life: 45 years Round your answer to the nearest $10,000. Present the final value in whole dollars and $/SF. Your answer: Question 2 (20 points) Complete a sales comparison approach using the following information and data: . . In your adjustment grid on the following page, round all adjustments to the nearest percentage. Include a + or - to indicate the direction of each adjustment. Make the market conditions adjustment first and independent of all other adjustments. At the end, add together the location/physical adjustments because they are cumulative (don't forget to consider the direction of adjustments). Not all items will require adjustment. Remember, comparables are adjusted to the subject, so a superior characteristic would be adjusted downward, and an inferior characteristic would be adjusted upward. . . Subject property 312,000 SF warehouse Sales A-D are all warehouses. . Market conditions adjustment Market conditions adjustments are applied before all the other adjustments, after which you should calculate a semi-adjusted $/SF before proceeding with the location/physical adjustments. Market conditions were stable from late 2019 until July 2020, when market conditions improved 30% due to demand for warehouse space for e-commerce. These conditions still exist today, in October 2021. Sales that took place prior to July 2020 sold during inferior market conditions. . . Location adjustment Whitestown is considered to be 10% superior to Indianapolis. Greenwood is considered to be 15% inferior to Whitestown. Plainfield is considered to be 10% inferior to Whitestown. . . Size adjustment Buildings in this market require a 1.5% adjustment per 10,000 SF of difference. Smaller buildings are considered superior, and larger buildings are considered inferior. Age/condition adjustment An adjustment for age is 2% per year of difference. Older buildings are considered inferior, and newer buildings are considered superior. Remember the market conditions adjustment is performed prior to location/physical adjustments. Location/physical adjustments are added up and can net each other out. Last, present the range of adjusted $/SF and the indicated range of values in whole dollars, rounded to the nearest $10,000 for the subject building. Your answer: SHOW ALL ADJUSTMENTS AS PERCENTAGE WITH + or - TO INDICATE DIRECTION OF ADJUSTMENT. Sale C June 2020 Sale D July 2021 Date of sale Subject Date of value: October 2021 Indianapolis 312,000 SF Sale A Sale B April 2021 November 2019 Whitestown Greenwood 255,000 SF 359,000 SF 2 years $26,775,000 $21,181,000 $105 $59 Transactional Adjustments Location Size Effective Age Sale Price Sale Price/SF Plainfield 212,000 SF 8 years 1 year Indianapolis 470,000 SF 14 years $18,800,000 $40 10 years N/A $17,596,000 $83 N/A N/A Market conditions Semi-Adjusted $/SF (Sale price/SF after market conditions adjustment) Location/Physical Adjustments Location Size Age Net physical/location adjustments Adjusted $/SF N/A N/A N/A N/A N/A Resulting (low to high) range of $/SF values for subject: Resulting (low to high) range of whole dollar values for subject: O Question 3 (20 points) Construct an income proforma operating statement using the following information. Show the following: PGI (rental income and other income itemized), shown in whole dollars and $/SF o Vacancy & collection loss, shown in whole dollars and as a percentage o EGI, shown in whole dollars and $/SF o Operating expenses, shown in whole dollars and $/SF o OER, shown as a percentage o NOI, shown in whole dollars and $/SF Subject: 312,000 SF warehouse Income: Market rent is $7.25/SF with industrial gross terms. Industrial gross in this market means the landlord pays for taxes, insurance, common area maintenance (CAM), management, and replacement reserves. The property receives other income from leasing trailer parking spaces. They currently lease 40 spaces for $80/month. . Vacancy and collection loss: Market vacancy in this market is 2.5%. Market collection loss is 0.25%. . 0 . Operating expenses: Insurance: $0.12/SF Real estate taxes: $2.20/SF CAM: $0.25/SF Management fee: 4% of EGI Replacement reserves: Based on a sinking fund factor for $3.50/SF for 4 years in an interest- bearing account with a rate of 3% (annual compounding). . . Your answer: Question 4 (5 points) Develop a range of market cap rates through market extraction using the following data. Then, using the net operating income from question 3 and the range of cap rates you have calculated, present a range of applicable values for the property using the direct capitalization technique. NOI Sale A $1,251,000 $26,775,000 Sale B $1,015,000 $21,181,000 Sale C $889,000 $18,800,000 Sale D $844,000 $17,596,000 Sale price Cap rate Your answer: Resulting (low to high) range of cap rates: Resulting (low to high) range of whole dollar values for subject: Resulting (low to high) range of $/SF values for subject: Bonus question 1 (5 bonus points) Thinking back to highest and best use analysis, what does the difference between the value from your cost approach and the value from the income and sales approaches indicate about the subject property? Your answer: Bonus question 2 (7.5 bonus points) Your client asks you to indicate a cap rate for the subject property using the band-of-investments technique, using the following parameters: 80% loan-to-value ratio 3.5% interest rate (monthly compounding) 30-year amortization 8% equity dividend rate . What is your cap rate indicated by this technique? Using the NOI from question 3, what would that indicate is the value of the subject property (rounded to the nearest $10,000)? Your answer Bonus question 3 (7.5 bonus points) Your client asks you to indicate a cap rate for the subject property using the DCR technique, using the following parameters: 80% loan-to-value ratio 3.5% interest rate (monthly compounding) 30-year amortization 1.15x DCR . . What is your cap rate indicated by this technique? Using the NOI from question 3, what would that indicate is the value of the subject property (rounded to the nearest $10,000)? Your