Scenario: Purchase of Office Space in Nebraska: Investor requires a 18% Before Tax IRR

$15,000,000 total cost of project. 70% LTV

PGI: Price per square foot = $6 annually. 50k Square feet

Vacancy: 25% each year

CAPEX: 5%

OPEX: 45% of EGI

WACC: 9% - Reinvestment Rate: 12%

Mortgage Rate: 6.25% 30 year term.

Closing costs: 3% of L/A

Going out CAP rate: .5 less than purchase price going in CAP rate

DSCR requirement: 1.4

Debt Yield Ratio must be above 11%

Selling costs in year 5 = 4% of sales price

5 Year Hold

Tax Rate 10%

Questions and Valuation sensitivity

1. What is the IRR?

2. Does this work for the investor?

3. Is the NPV positive?

4. Does the financing work considering DSCR and Debt to Yield Ratio requirements?

5. What is the going in value of the property considering the year 1 NOI and assuming comparable properties sold at 9.8,9.2, 9.6,9.9 and 9.8 cap rates?

6.What is the Market going in cap rate?

7. To determine EGIM comparable properties sold at 5.6, 5.4, 5.9. What is the market EGIM?

8. What is the Going In EGIM valuation?

9. Is this a good buy based on your valuation calculations?

10, What is the future projected sales price in year 5 based on the given going out CAP rate?

11. Does the IRR work if we assume no decrease in CAP rate?

12. Separately, does the IRR work if there is no increase in rents?