SECTION #1 Financial Statement

Answer the questions below based on the scenario.This section is worth up to 100pts.

You have been hired to advise Positive Alpha Investments to investigate the purchase of an income producing strip mall property and you have to decide by Thursday November 17, 2016 at midnight whether or not to purchase the property.If you choose to invest the transaction date will occur on Tuesday February 7, 2017.The investment has the following project financials:

Financials:

1 anchor tenant paying $40 per sq ft per year for 150,000 sq ft

5 supporting tenants paying $55 per sq ft per year for 18,000 sq ft each

10 kiosk tenants paying $70 sq ft per year for 1,000 sq ft each

The 1 anchor tenant has a contract that expires 12/31/2017

The 5 supporting tenants all have contracts expire 2/7/2018, 2/7/2019, 2/7/2020, 2/7/2021, and 2/7/2022

The 10 kiosk tenant's contracts are structured so that half expire at the end of even years and the other half expire at the end of odd years (December 31^st)

The anchor tenant contract is renewable in five year increments at the cost of living adjustment rate minus 1%

The supporting tenants have five year contracts that are renewable at the cost of living adjustment rate

The kiosk tenant contracts have two year contracts that are renewable at the cost of living adjustment rate

There are currently no vacant retail units, but your expectation is that you will lose 10% of kiosk tenants every other year and 20% of supporting tenants in a five year period.Kiosk tenants typically can be replaced in six months once one has moved out, while it takes twelve months to replace a supporting tenant (30% Turnover Ratio)

There are vending machines that generate $500 per month in income and ATM machines that generate $250 per month in income

Commercial:

oUtilities are currently running at high rates:

Electric (avg.): $10,000 per month and are expected to increase by 2% per year

Gas (avg.): $10,000 per month and are expected to increase by 3% per year

Water (avg.): $10,000 per quarter and are expected to increase by 7% per year

Sewer (avg.): $10,000 per quarter and are expected to increase by 7% per year

oManagement Fees for maintenance, landscaping, snow plow removal, security, repairs (w/supplies), etc is 15% of EGI (Retail Property only)

oAdvertising and Legal Fees are $15,000 per month combined

Total Property:

oProperty Taxes are $850,000 per half year in 2017 (as part of the negotiation you will owe the full amount for 2015) and will increase every 3 years by 5%

oInsurance is $350,000 per year (increase by 1.4% per year)

Residential: As part of the property in separate buildings you also have 100 residential units (175,000 sq ft) with the following demographics:

o20 1-bed/1-bath units, $750/month, rents increase at the cost of living

o30 2-bed/1-bath units, $900/month, rents increase at the cost of living

o30 2-bed/2-bath units, $1000/month, rents increase at the cost of living

o20 3 bed/2-bath units, $1150/month, rents increase at the cost of living

Expenses for the residential space are as follows:

oThe tenants pay for their own electric and water/sewer, but the gas bill for the month is centrally billed and averages $5,000 per month.

oTrash collection is centrally billed and is $1000 per month

oTelephone and Internet for the residential building is $750 per month

oAll maintenance costs are $4000 per month

oLandscaping and Snow Plow Services are $1500 per month (combined)

oLegal and Accounting Services are $12,000 per year (combined)

oManagement and Administration Costs are 7% of EGI

Other Income comes from the following sources:

oYou have 150 parking spaces available per month at a rental rate of $25 per month per space and they are always 100% purchased and occupied regardless of the vacancy level, which you estimate to be 8% for the 1-bed and 3-bed units and 4% for the 2-bed units.

oYou estimate that laundry will collect approximately 6 loads per month ($3.00 for a load wash and dry) for each bedroom in the building

oStorage costs are not included in the rent and each storage locker belongs to each unit and the storage lockers cost are estimated on the number of bedrooms per unit.The cost is $10 per bedroom per month.

oPets are not allowed in the building.

oAnd a maintenance fee is assessed each month based on the number of bedrooms per unit at $15 per bedroom per month.

You currently have $20,000,000 in cash on hand.

Estimate your 30 year income statement and assess the measures of risk and ratios and the IRR and NPV after the holding period.

For your debt service (mortgage) you have several options to choose from below:

Fixed Rate MortgageSecond Line of CreditRefinancing

20 year schedule10 year schedule20 year schedule

Monthly PaymentsMonthly PaymentsMonthly Payments

5.00%8.00%6.00%$100,000 in Fees $25,000 in Fees$100,000 in Fees

LTV = up to 60%LTV = up to 85% LTVLTV = up to 60%

DCR = 1.3(in addition to primary loan)DCR = 1.4

The LLC operates as a corporation, but all income is passed through to the individuals without a corporate tax and thus are only taxed and the individual level (married filing jointly), this includes all federal, state and local taxes.

Your client has no other income than this property and would own 100% of the property if purchased

You have no tax loss carry forwards from previous year's and have no current projects that have losses that would offset any gains from this project you are currently reviewing.

Building Value is 75% of Total Property Value

The property at purchase and sale has the cap rate of 8%

Sales Expense is 3.5%

Asking price of $91,500,000