You are considering the purchase of an industrial building for $10,120,000 today. Below, you are given the information you need to analyze the investment and decide how to proceed. Remember: Your submission for this assignment should be calculated in Microsoft Excel. Please show all your formulas in the spreadsheet. I can only give you partial credit if I see how you did each calculation. Your expectations for this stabilized property include the following: first-year potential gross income of $4,250,000; vacancy and collection losses equal to 4% of potential gross income; operating expenses equal to 40% of effective gross income; and capital expenditures equal to 6.5% of EGI. You pay all of the operating expenses yourself, and you also have to pay a leasing broker 25% of vacancy and collection losses every year to fill the vacant spaces. The value of the building and the PGI both grow at 5% per year for the next six years. You sell the property after year 5. Your selling expenses are 2.75% of the resale price. Your discount rate is 7%. 1. Calculate the following for comparison to other similar properties: (a) Going-in cap rate? (b) Effective gross income multiple? (C) Operating expense ratio? (d) Going-out cap rate? (e) Net income multiple? 2. What can you conclude about this property based on these ratios? What opportunities do you see? What risks are you concerned about? 3. What is the estimated property-before-tax cash flow (PBTCF) for each year of operations? Please show these calculations in the form of a pro forma. 4. Using the PBTCFs, what is the value of the property? 5. Based on all your calculations, is the asking price worth it? You are considering the purchase of an industrial building for $10,120,000 today. Below, you are given the information you need to analyze the investment and decide how to proceed. Remember: Your submission for this assignment should be calculated in Microsoft Excel. Please show all your formulas in the spreadsheet. I can only give you partial credit if I see how you did each calculation. Your expectations for this stabilized property include the following: first-year potential gross income of $4,250,000; vacancy and collection losses equal to 4% of potential gross income; operating expenses equal to 40% of effective gross income; and capital expenditures equal to 6.5% of EGI. You pay all of the operating expenses yourself, and you also have to pay a leasing broker 25% of vacancy and collection losses every year to fill the vacant spaces. The value of the building and the PGI both grow at 5% per year for the next six years. You sell the property after year 5. Your selling expenses are 2.75% of the resale price. Your discount rate is 7%. 1. Calculate the following for comparison to other similar properties: (a) Going-in cap rate? (b) Effective gross income multiple? (C) Operating expense ratio? (d) Going-out cap rate? (e) Net income multiple? 2. What can you conclude about this property based on these ratios? What opportunities do you see? What risks are you concerned about? 3. What is the estimated property-before-tax cash flow (PBTCF) for each year of operations? Please show these calculations in the form of a pro forma. 4. Using the PBTCFs, what is the value of the property? 5. Based on all your calculations, is the asking price worth it
