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 one and the one displayed here. There are three scenarios, 1. Flat cash flows. 2. A 2% rise in cash flows each year. 3. Scenario 1, but with an increase in the vacancy rate from 5% to 10% 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.

Property Information: WEST OFFICE PLAZA Rentable Area 300,000 sq. ft. Age \# Stories 8 years \# Tenants 15 40 Financial Information: Base Rent Avg. $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 $695,000 Property Taxes $675,000 Insurance $430,000 General Operations/Leasing Expense/Marketing $667,000 Utilities $1,159,100 Janitorial/Cleaning $489,000 Business Taxes $110,000 Other: Recurring CAPEX/Improvement Allowance * $700,000