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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

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 nycs meatpacking district. theres no pricing guidance on the property and the Seller is just advising interested buyers to make an offer. theres 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 2nd avenue
occupancy: 0%
building size: 111,663 sf
vacant land: 0.40 acres
lot size(s): 3.21 acres
debt: free and clear
property breakdown:
address
size
category
429 south 2nd avenue
59547 sf
warehouse
429A south 2nd avenue
8080 sf
warehouse
409 south 2nd avenue
33956 sf
warehouse
413 south 2nd avenue
10100 sf
warehouse
325 south 2nd 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 7.5%
10. annual increases (beginning after lease-up); 3.0% for rents, and 2.5% 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 5.25% with 30 years amortization.
13. you sell the property at the end of five years based on an exit cap of 6.25%. your closing costs are 4% of the purchase price.
questions to answer [please provide step to step explanations]
3. ASP decides to raise 90% of the equity required for the project from various high net worth investors. we decide to give these investors a 7% preferred return on their equity and anything beyond that we will take 35% of their profits (our promote). if we want to give them a 15% IRR (net of the promote) how much can we offer to buy the property for?

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