Q22 As a practicing property consultant you have been asked by your client to calculate property investment options under the following scenarios Pro Details Assume a commercial property is on the market and can be purchased for $4.8m. The tenant is contracted to pay a gross annual rent of $360,000 in the first year. Rents will increase by 3 percent each year. All costs will be met by the lessee except for a fixed sum of $25,000 p.a., which is the lessor's responsibility The two-level building with a roof top car park is new, built out of permanent materials and the tenant has signed a 5-year lease with rights of renewal for a further 5 years Your client requires a pre-tax return on the project of 10 percent p.a. Note: For simplicity you may ignore Real Estate and Legal fees when doing the analysis and assume that rents and costs are paid at the end of each year. Construct a five year cash flow analysis for your client. Assume property values increase by 15 percent over 5 years and there is no borrowing. Does the return meet your client's criteria? [8 marks] 1) 2)You are asked to calculate the minimum annual property value growth rate necessary for the client to achieve a 10 percent p.a. return on equity, assuming no borrowing and the rents and costs specified in (1) above 4 marks 3) Show how the situation in scenario (1) would change if your client was able to borrow 80 percent of the purchase price on a flat mortgage for 5 years with an interest rate of 8 percent per annum? 4 marks 4)There is provision in the lease for sub-leases. At the end of the second year the original tenant moves out and subleases the property for $390,000 per year for the remaining three years. Is this sub-lease contract financially wise for the original tenant based on a 10% discount rate? 4 marks] [Total: 20 marks] Q22 As a practicing property consultant you have been asked by your client to calculate property investment options under the following scenarios Pro Details Assume a commercial property is on the market and can be purchased for $4.8m. The tenant is contracted to pay a gross annual rent of $360,000 in the first year. Rents will increase by 3 percent each year. All costs will be met by the lessee except for a fixed sum of $25,000 p.a., which is the lessor's responsibility The two-level building with a roof top car park is new, built out of permanent materials and the tenant has signed a 5-year lease with rights of renewal for a further 5 years Your client requires a pre-tax return on the project of 10 percent p.a. Note: For simplicity you may ignore Real Estate and Legal fees when doing the analysis and assume that rents and costs are paid at the end of each year. Construct a five year cash flow analysis for your client. Assume property values increase by 15 percent over 5 years and there is no borrowing. Does the return meet your client's criteria? [8 marks] 1) 2)You are asked to calculate the minimum annual property value growth rate necessary for the client to achieve a 10 percent p.a. return on equity, assuming no borrowing and the rents and costs specified in (1) above 4 marks 3) Show how the situation in scenario (1) would change if your client was able to borrow 80 percent of the purchase price on a flat mortgage for 5 years with an interest rate of 8 percent per annum? 4 marks 4)There is provision in the lease for sub-leases. At the end of the second year the original tenant moves out and subleases the property for $390,000 per year for the remaining three years. Is this sub-lease contract financially wise for the original tenant based on a 10% discount rate? 4 marks] [Total: 20 marks]
