University is deciding whether to invest in a property or not. The property has 4 floors which are 10,000 sf each. Each tenant occupies 1 floor. Tenant 1 and 2’s rent is $30 for sq/yr. Tenant 3 and 4 pay $30 per sf/yr plus 15% of base rent. Estimated vacancy and collection losses are of 10%. Costs are allocated as follows. Insurance for the property cost $0.60 sf/year. Management fee is 2% of the total revenue.
Utilities are $1.00 for sf/yr and maintenance is $0.75 per sf/yr. The market price is $25,000,000. Similar properties trade at only 5% cap rate.


Calculate the property’s first-year NOI. Finally, using the given cap rate, do you believe Drexel University should invest in this property? What if the cap rate was 3.7%?