You are an employee of Real Estate Investment (REI), Inc. and you are tasked with evaluating a project for

development by the firm. The project would consist of a 400,000 square foot office building totaling 10 stories. If

the project is approved, REI will construct the building on a 1.3-acre tract of land which they acquired for $4.5

million. The cost of construction on the project is $28 million. The building, once constructed, will be leased to

various tenants requiring office space.

Based upon projected market conditions, REI has come up with 2 possible scenarios for the leasing of the

building. In scenario 1, the expected initial lease rate is $13.80 per square foot, with an anticipated increase in lease

rates of 6 percent annually, and a vacancy rate of 4 percent. In scenario 2, REI projects a higher annual lease rate of

$14.10 per square foot, lease rates increasing at rate of 5 percent annually, and an expected vacancy rate of 4

percent. In both scenarios, REI projects other income at 2.2 percent of gross rental income from the property. REI

plans to develop, lease, and manage the property for ten years, at which time the property will be sold.

Using the information provided, evaluate the feasibility of the project under each scenario. What is the present

value of the property, under each scenario, using a discounted cash flow analysis? What is the internal rate of return

for the property? Which project scenario would you recommend to management, and why?

The analysis should be completed using Excel. Ensure that your Excel spreadsheet is well formatted and easy to

follow. The analysis should also include a word document which describes, what you did, and your results. The

write up should be no more than 5 double spaced pages. The analysis should include a computation of (a) the

effective annual rent, (b) the going-in capitalization rate (R) based on year 1 NOI, (c) the terminal capitalization rate

at the end of year 10, and (4) the reversion value (REV).

Make sure your Excel model is designed and built by you and the written document is your work. The sharing

or plagiarizing of work will result in a zero grade for all individuals involved. The project should be turned in by

Sunday, November 15, 2020 at 11:59 pm. It should be submitted through the CANVAS platform. Remember, you

must submit an Excel file showing your analysis, and a Word document describing your analysis and results.