Take a look at this: Property Information: WEST OFFICE PLAZA Rentable Area 300,000 sq. ft. Age # Stories # Tenants Financial Information: Base Rent Avg. 8 years 15 40 $20 per sq. ft. Other Income/Parking/Storage $1.50 per sq. ft. Expenses Recoverable from Tenants $2.50 per sq. ft. Current Vacancy 5% Expenses: Mgmt./Admin./Security/Ownership Property Taxes Insurance General Operations/Leasing Expense/Marketing Utilities Janitorial/Cleaning Business Taxes Other: Recurring CAPEX/Improvement Allowance $695,000 $675,000 $430,000 $667,000 $1,159,100 $489,000 $110,000 $700,000 You are an adviser to a private equity client who is thinking about buying this building. This client requires an 9% IRR after taxes are taken into account, and you are nervous because this market has shown no rent or occupancy growth for the past five years (but no declines either!) You anticipate a three year holding period. Note that this is not strictly speaking a triple net lease, but there are provisions for recovering expenses from the tenants. Do not worry about the differences in cost items between this pro forma and the example in class. Every one is different. Do not include items from the class example that are not included here. There are three scenarios, 1. Flat cash flows. 2. A 1% rise in cash flows each year. 3. Scenario 1, but with an increase in the vacancy rate from 5% to 20% in year 2. (for this one, the standard formulas will not work because the cash flows are not constant, or constant growth.) What is the maximum willingness to pay for this building in each case? Provide three spreadsheets showing the pro forma for each.