You create a real estate investment syndicate in Southern California to purchase a strip mall and convert it into office units. Below is 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. The strip mall contains six units. Each unit has a leasable area of 2,500 square feet. In total, the lot size is 25,000 square feet. In this market, offices are currently renting for $20 per square foot per month. You expect that rents will grow approximately 2 percent per year for the next six years, but you will sell the property at the end of the fifth year. In the first year, the property will have 50% vacancy, as you renovate it, unit by unit, to turn it into offices. The renovations will cost you $1.2 million. Meanwhile, you will also be spending 40% of EGI on operating expenses. That's year 1. In the remaining years, you will set aside 5% of NOI for future repairs and renovations, and you plan to get your operating expense ratio down to 25%. Your tenants will pay half of those operating expenses in the remaining years (but not in year 1 when you're renovating). Vacancy rates will fall to 5%. At the time of purchase, the market values the building with a cap rate of 7%. That's how the seller calculates the price you pay. Then you go to the bank and get an interest-only mortgage with 65% LTV, an interest rate of 2.8%, and a term to maturity of 15 years. One last thing: You have to forecast the resale price. You think to yourself, "Cap rates go up as a building ages, but they go down as the market improves. Also, cap rates are lower for offices than for retail. So...I'll just assume that the going-out cap rate is the same as the going. in cap rate." Then you'll have to pay 5% in selling expenses. 1. Please prepare a pro forma for all the years of the investment, from PGI down to EBTCF. 2. How much equity do you have to raise to buy the property in the first place? 3. Do you think it's a good investment? Why or why not? You create a real estate investment syndicate in Southern California to purchase a strip mall and convert it into office units. Below is 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. The strip mall contains six units. Each unit has a leasable area of 2,500 square feet. In total, the lot size is 25,000 square feet. In this market, offices are currently renting for $20 per square foot per month. You expect that rents will grow approximately 2 percent per year for the next six years, but you will sell the property at the end of the fifth year. In the first year, the property will have 50% vacancy, as you renovate it, unit by unit, to turn it into offices. The renovations will cost you $1.2 million. Meanwhile, you will also be spending 40% of EGI on operating expenses. That's year 1. In the remaining years, you will set aside 5% of NOI for future repairs and renovations, and you plan to get your operating expense ratio down to 25%. Your tenants will pay half of those operating expenses in the remaining years (but not in year 1 when you're renovating). Vacancy rates will fall to 5%. At the time of purchase, the market values the building with a cap rate of 7%. That's how the seller calculates the price you pay. Then you go to the bank and get an interest-only mortgage with 65% LTV, an interest rate of 2.8%, and a term to maturity of 15 years. One last thing: You have to forecast the resale price. You think to yourself, "Cap rates go up as a building ages, but they go down as the market improves. Also, cap rates are lower for offices than for retail. So...I'll just assume that the going-out cap rate is the same as the going. in cap rate." Then you'll have to pay 5% in selling expenses. 1. Please prepare a pro forma for all the years of the investment, from PGI down to EBTCF. 2. How much equity do you have to raise to buy the property in the first place? 3. Do you think it's a good investment? Why or why not