You are considering the purchase of a 37,000 SF office building . Below, you are given the information you need to analyze the investment and decide how to proceed.

In the first year, you plan to charge $27.60/SF, but due to COVID-19, tenants will miss their rental payments 15% of the time .Variable operating expenses will cost you 25% of EGI, and fixed operating expenses will cost10%of EGI. But you can require your tenants to pay all of the variable expenses. You plan to set aside$100,000 per year for future renovations.

1.What is the estimated net operating income (NOI) and property-before-tax cash flow (PBTCF) for the first year of operations? Please show these calculations in the form of a pro forma.

You assume that NOI will grow by 5% per year for the next six years.

2.If you pay $13 million for the building, what is the going-in cap rate?

3.Based on the location of the property, what building class and city tier would you assign this investment to? Based on this categorization, is this a high-or low-risk investment?

You plan to sell the property after year 5, and you expect your selling expenses to be6% of the resale price .Assume that the going-out cap rate is 100 basis points higher than the going-in cap rate.

4.What is the resale price?

5.What is the reversion cash flow?