You have the opportunity to invest in an office building in downtown Tampa, in which you would purchase as a 5-year holding investment with a 12% required rate of return (discount rate). The building offers a total rentable area of 36,500 square feet, and 210 garage-parking spaces. You are provided the following information on the property from the current owner:

The owner is asking $14,684,650 for the building.

The owner has annual contracts from tenants on the building for 32,530 square feet of the total space at $38.25 psf, gross. Additionally, 185 parking spaces are leased by annual contract for $119.00 per month, per space. You expect this same office vacancy to occur into perpetuity and expect parking vacancy to equally correlate with the office vacancy. These lease terms are found to be in line with the downtown office market.

Current annual operating expenses for the building follow:

Management Fees: 4.25% of EGI

Annual Real Estate Taxes: $34,250

Hazard Insurance: $6,254

Maintenance/Repairs: $12,544

Supplies $5,896

Capital Replacement Allowance: $34,561

Administrative Costs: $7,680

Operating Costs of the Garage: $13,485

Your mortgage lender has committed to you a loan to purchase the office building (should you decide to partake in the investment), which would offer the following terms:

Loan-to-Value: 65%

Loan Costs: 1% of loan

Interest Rate: 4.55% FRM

Loan Duration: 25 years, fully amortizing

Prepayment Penalty: None

A study of the office building market in downtown Tampa indicates the following trended increases in incomes and expenses, which can safely be assumed in analysis forecasts:

Office rents: 2.75% per annum

Parking rents: 2.75% per annum

Real Estate Taxes: 3.50% per annum

Other Operating Expenses: 3.25% per annum

Assignment: Based on the above information, prepare a reconstructed income and expense statement for the 5-year holding period (six years analysis required). Calculate through Before Tax Cash Flows, show your work in the uploaded Excel file.