You are the CFO of Rock Properties, LLC. Rock owns and operates warehouse properties. Rocks $500,000 deposit has just gone "at risk" on the acquisition of a 100,000 square foot warehouse in a market with a 90% occupancy rate. You are developing the pro forma.

You are assuming: *Since The Property is 97.5% leased, I'm increasing rents at 5% a year and expenses at 3% a year. I'm utilizing 2.5% of gross rents as the vacancy and collection loss *Two big tenants moved in last year and The Seller gave them six months of free rent and $10 PSF of buildout so last year's Net Cash Flow was zero *We don't care about last year's Net Cash Flow. Start your cash flow projections on the day we acquire the Property and show the rents going forward. *Include a 1.0% brokerage commission and half of the Title and Recordation costs

Your boss says: *"Forget that the brokerage commission and Title Costs. You need to back into a cap-rate for the sale that generates enough proceeds that we can show our equity partners the 20 IRR that we need to raise the money"

What is wrong with your assumptions?

What is wrong with your boss's comments?