Project A is a new 50,000-SF warehouse in the Inland Empire on a 25,000-SF lot. The rent is $40/SF for the first year with a 5% annual step-up. The operating expense ratio (as a percent of EGI) is 50%. You will set aside another 15% of EGI every year for capital reserves. Its a gross lease. The average vacancy rate in the region is 1%. Local lenders are allowing a minimum DCR of 1.3 and a maximum LTV of 80%. You are seeking a 15-year, IO loan with a 5.25% interest rate. The local contractor offers to construct the building for $150/SF.

1. Conduct a feasibility analysis for each project.

2. If you assume a five-year holding period, what is the effective net rent