You are considering purchasing an upscale, urban office warehouse "flex" building for the price of $12,550,000. Seventy percent (70%) will be financed with a 20-year loan at 6% interest with fixed monthly payments. The remaining 30% will be financed with cash (equity). Eighty percent (80%) of the purchase price is attributed to the improvements and is depreciable. A total of 100.000 square feet can be leased at $16 per square foot per year. Vacancy and credit losses are expected to be 14%. Operating expenses are expected to run 25% of the effective gross income. Rent is expected to grow 2.5% per year. Assume you will sell the property in 5 years. At the end of year 5, the property is projected to be valued at the year 6 NOI capitalized at 7.5% (direct capitalization). Selling expenses are estimated to be 8% of the selling price. You are in the 30% income tax bracket (congratulations!!) and expect to pay a 15% tax on the capital gain and a 25% tax on the recovery of depreciation. Partial Amortization Schedule: (rounded to nearest dollar) Year Balance Due Interest Principal $520,720 $234,5 2 249.008 3 490,896 264,366 280.672 5 $7,458,430 $457,279 For the following, show all your work explicitly and by hand (check answer: ATCF3 = $228,209): A. Calculate the first year's estimated ATCF. B. What is the sixth year's estimated NOI? C. Calculate the estimated taxes on sale, as if you were selling after 5 years? D. Calculate the estimated ATER as if you were selling after 5 years? E. What is the break-even vacancy rate (year 1)? F. What is the debt coverage ratio? For the following, you may use cash flow tables and calculator strokes. If you use a spreadsheet, include it as an attachment. If not, include your work as an attachment. G. If the discount rate is 12%, what is the NPV? H. What is the IRR? [The answer to this is 15.71%. I quickly modified a spreadsheet and am confident this is correct. But, if I am wrong. I will update as soon as I find out!] You are considering purchasing an upscale, urban office warehouse "flex" building for the price of $12,550,000. Seventy percent (70%) will be financed with a 20-year loan at 6% interest with fixed monthly payments. The remaining 30% will be financed with cash (equity). Eighty percent (80%) of the purchase price is attributed to the improvements and is depreciable. A total of 100.000 square feet can be leased at $16 per square foot per year. Vacancy and credit losses are expected to be 14%. Operating expenses are expected to run 25% of the effective gross income. Rent is expected to grow 2.5% per year. Assume you will sell the property in 5 years. At the end of year 5, the property is projected to be valued at the year 6 NOI capitalized at 7.5% (direct capitalization). Selling expenses are estimated to be 8% of the selling price. You are in the 30% income tax bracket (congratulations!!) and expect to pay a 15% tax on the capital gain and a 25% tax on the recovery of depreciation. Partial Amortization Schedule: (rounded to nearest dollar) Year Balance Due Interest Principal $520,720 $234,5 2 249.008 3 490,896 264,366 280.672 5 $7,458,430 $457,279 For the following, show all your work explicitly and by hand (check answer: ATCF3 = $228,209): A. Calculate the first year's estimated ATCF. B. What is the sixth year's estimated NOI? C. Calculate the estimated taxes on sale, as if you were selling after 5 years? D. Calculate the estimated ATER as if you were selling after 5 years? E. What is the break-even vacancy rate (year 1)? F. What is the debt coverage ratio? For the following, you may use cash flow tables and calculator strokes. If you use a spreadsheet, include it as an attachment. If not, include your work as an attachment. G. If the discount rate is 12%, what is the NPV? H. What is the IRR? [The answer to this is 15.71%. I quickly modified a spreadsheet and am confident this is correct. But, if I am wrong. I will update as soon as I find out!]
