stern square partners has been investing in dallas, texas over the past few years. a broker we work closely with sends us an offering memorandum for a vacant warehouse in the deep ellum neighborhood of dallas, an upcoming nightlife and restaurant area district similar to nyc$$s meatpacking district. there$$s no pricing guidance on the property and the Seller is just advising interested buyers to $$make an offer$.$ there$$s also not a lot of detail on the property itself other than a square footage breakdown and some pictures. the property clearly needs a gut renovation, but we think that it could be a great office$/$retail conversion given the large amount of development in the area, including a $400,000$ SF office project to be fully occupied by uber.

investment summary:

location: $429,413,409,$ and $325$ south $2$nd avenue

occupancy: $0\%$

building size: $111,663$ sf

vacant land: $0\mathrm{.}40$ acres

lot size$($s$)$: $3\mathrm{.}21$ acres

debt: free and clear

property breakdown:

address

size

category

$429$ south $2$nd avenue

$59547$ sf

warehouse

$429$A south $2$nd avenue

$8080$ sf

warehouse

$409$ south $2$nd avenue

$33956$ sf

warehouse

$413$ south $2$nd avenue

$10100$ sf

warehouse

$325$ south $2$nd avenue

$10000$ sf

land

after discussing the project internally, we come up with the following assumptions:

$1.$ estimated closing costs of $4\%$ of the purchase price

$2.$ hard costs $($capex$)$ required for interior renovations $-$ $$75$ psf

$3.$ landscaping$/$parking renovations $-$ $$1,500,000$

$4.$ soft cost estimate for interior renovations $-$ $$15$ psf

$5.$ construction period $($including permitting$)12$ months

$6.$ lease up period $6$ months

$7.$ estimated operating expenses $-$ $$4$ psf during construction and lease up$,$ $$7$ psf after lease up$.$ this includes real estate taxes and property management.

$8.$ rental rate psf $-$ $$34$ PSF

$9.$ estimated pro forma vacancy rate $7\mathrm{.}5\%$

$10.$ annual increases $($beginning after lease$-$up$)$; $3\mathrm{.}0\%$ for rents, and $2\mathrm{.}5\%$ for OPEX

$11.$ leasing commissions are paid once at the beginning of the lease and are $25\%$ of the gross yr$.1$ annual rent.

$12.$ you will take out a loan at purchase at $60\%$ LTC $($Loan to Cost$)$ with an interest rate of $5\mathrm{.}25\%$ with $30$ years amortization.

$13.$ you sell the property at the end of five years based on an exit cap of $6\mathrm{.}25\%.$ your closing costs are $4\%$ of the purchase price.

questions to answer $[$please provide step to step explanations$]$

$1.$ what is your gross sales price in year $5?$

$2.$ if we want to achieve a deal level IRR of $18\%,$ how much can we offer to buy the property for?