Scenario

Tenacity Co., a flexible real estate provider, has an opportunity to engage in a commercial lease with

Brookpoint Asset Management, the owner of a property in midtown Manhattan. The terms of the deal are

to lease the entire property for the term of the lease.

Task:

Underwrite the deal based on the assumptions provided below. 1. operating model inclusive of

cash flow projections and returns over the term of the lease.

Term: 10 Years

SF: 60,000 RSF

Inflation: 2.5%

Membership Fee: $850 (1,000 Memberships Available)

Occupancy: 90%

Vacancy Rate: 40% in year 1 with decreasing 15% increments to stabilization

Rent:

o $55/RSF (Rent)

o $20 / RSF (Property Expenses)

o 2.5% Annual Escalations

Tenacity Co. Operating Expenses: $20/RSF

Fit Out Cost: $200 / RSF (from white-box)

Fit Out Length: 6 months (Fit Out Curve: assume straight line over fit out period)

Market Tenant Improvement Allowance: $120 / RSF

Tenant Improvement allocation curve (assume TI is recouped in the same month capital is

deployed)

Market Free Rent: 12 Months (of Gross)

Deliverables:

10 Year cash flow projection

NPV (10 Years) to Tenacity Co. (12% Discount Rate)

Rent Coverage Ratio

Stabilized NOI margin

Sensitivity of Membership Fee and Market Rent to Net Income Margin

Part 2. Brookpoint Asset Management

Assumptions:

- Acquisition Price: $45MM

- Budget: $10MM (to white-box) *Does not include TI allowance

- Exit: Year 3

- Cap Rate: 5.0%

- Debt:

o 60% LTC

o 4.0% Interest

o 10 year - interest only + balloon payment

*Assume the owner's capital is deployed in all at once at the start of analysis

Deliverables:

1. YOC

2. Stabilized NOI to Owner

3. Levered IRR

4. Sale amount