You are the CFO of ABC Inc. Your company has $$100$ million in its pension fund. You plan to deploy your $$100$ million. You call your broker, and she suggests an upcoming office acquisition deal for TLC Tower.

TLC Tower Details:

TLC Tower is and office space with an expected offer price of $$183$ per square feet $($sf$).$ The building has a rentable square footage $($rsf$)$ area of $310,000.$ A bank has already leased $50\%$ of the building at a full$-$service annual rental rate of $$32/$rsf for $10$ years. The rent will increase by $3\%$ every $2$ years. Operating expenses are $$17/$sf$.$ The market rent for a full service $5-$year lease for this building is $$35/$rsf$.$ Tenant improvements and leasing commission are $$18$ and $8\%$ respectively. This building is expected to trade at a $9\%$ cap rate based on the forward $12$ months$$ NOI.

Assume that half of the remaining space will be leased after $8$ months of purchase at the market rates and the remaining half will be leased at the same rate after $15$ months of purchase.

The building required immediate capex of $$300,000$ and an additional $$55,000$ annually on deferred capex for $3$ years. It has a parking ratio of $3$ stalls$/1000$ sf with a parking rate of $$110/$month$.$

Using the information above answer the following:

$1.$ Assuming a holding period of $5$ years after which the building will be sold off, find the unleveraged IRR. $10$

$2.$ Assuming that the project will be financed through $65\%$ loan of $25$ years with $4\%$ interest rate, $1$point origination fee and $1$ point exit fee on the outstanding loan balance. What is the leveraged IRR? $10$

$3.$ Based on your analysis and your real estate knowledge, what are the other factors to be evaluated to make the decision to buy $($not buy$)$ the building? $5$

Hint: All the expenses and prices are annual unless stated otherwise.

Calculate monthly cashflows.