1. Simpson Tower has the following NOI projections:

• Year 1 ($18,000)
• Year 2 $115,000
• Year 3 $138,000
• Year 4 $158,000

The building has some vacancies next year, but the property should be back to a healthy NOI in Year 2. Assume a holding period of three years. Cost of sale would be 6%. The market discount rates on investments of this type have been around 10%. The going-out capitalization rates for similar buildings average 9.5%. Recently, your client received an offer of $1,400,000 (net of selling costs) for the building. (5 points each)

1. What are the sales proceeds at the end of the holding period?

2. What is the present market value of the property?

3. Would you advise the client to accept this offer?

4. What if the market discount rate were only 8%? What is the market value now? What would you recommend to the client?