Zenith Corp is considering the purchase of an office building at a Going-In Cap Rate of 10.327553%, that they wish to sell in two years time at a terminal cap rate of 11.327600% (a 4.7000% selling cost applies). It will be financed in part by a 79.64515% LTV (Loan to Value), 25-year, 8.00% CPM mortgage loan. A property management company manages the property for an annual management fee of 5.3000% of EGI, and the vacancy and credit losses are negligible. The building has 100,000 sft of gross space and non-rentable space is 13%. The building is currently fully occupied by two tenants with equal rentable space. In the year ending at t=0, Tenant 1 paid $20.00/Yr per sft of base rent with an expense stop of $8.00/Yr per sft, and there is 1 year remaining in their lease. Tenant 2 has just signed a new 5-year lease at $23.00/Yr per sft of base rent with an expense stop of $9.20/Yr per sft. A 50% CPI Adjustment applies to all existing and future leases. New leases are for 5 years and are made at the prevailing market rent as the base rent with expense stop set at the operating expenditure/Yr per sft of the first year of new lease. Assume that CPI, Market Rent and Operating Expenditures will increase at 3.0000%/Yr. The Total PV (now at t=0) of Equity BTCFs from Operation over the horizon is estimated to be $517,366 [BTCF from Operation excludes: Initial (t=0) Cash Flow, and Cash Flow from Sale].

No Tax Consideration for Property Investment problems.

Annual Debt Service (ADS)= Monthly Mortgage PMT x 12. DCR = NOI₁/ADS

(a) What is the DCR, rounded to four decimals? ____

(b) Calculate the Before-Tax IRR, %, rounded to two decimal places, on equity investment of Zenith? ____

(c) [Not cumulative over other questions]. Holding all other things the same as above, what is the break-even selling cost, %, rounded to four decimal places? ____

(d) [Not cumulative over other questions]. Holding all other things the same as above, what is the break-even TCR (Terminal Cap Rate), rounded to four decimal places? ____

Year 0 1 Market Rent/Yr per sft, 4 decimal places Oper Expen/Yr per sft, 4 decimal places Tenant 1 (Exisiting Lease) Rentable Space, Sft Base Rent, sft, 4 decimal places Tenant CPI Adjusted Rent, sft, 4 decimal places Tenant Rent Tenant 2 (New Lease Signed at BOY1) Rentable Space, sft Base Rent, sft, 4 decimal places 4 Tenant CPI Adjusted Rent, sft, 4 decimal places Tenant Rent Total Rent 1 2 PROJECTED INCOME Year Total Rent Expense Stop, Tenant 1 Expense Stop, Tenant 2 Tenant 1 Expense Reimbursement Tot Tenant 2 Expense Reimbursement Total Reimbursements Potential Gross income Vacancy Effective Gross Income SUMMARY OF OPERATING EXPENSES Operating Expendtiure Management Fee Total Expenditure PROJECTED NET OPERATING INCOME Year Effective Gross Income Total Expenditure NOI 2 Given LTV or DCR and NOI1, Calculation of Mortgage Loan and Future Loan Balances NOI1 DCR DS, Annual DS, Monthly 0 1 2 3 Year PMT (=DS, Monthly, given DCR and NOII) Mortgage Rate, Per Month, in decimal Amortization Period, Years FV PV=EOY Mortgage Loan Balance ol 1 2 3 Year NOI Debt Service Equity BTCF from Operation REV Value Selling Cost Mortgage Balance Equity BTCF from Sale Equity BTCF, Overall Equity BTIRR Year 0 1 Market Rent/Yr per sft, 4 decimal places Oper Expen/Yr per sft, 4 decimal places Tenant 1 (Exisiting Lease) Rentable Space, Sft Base Rent, sft, 4 decimal places Tenant CPI Adjusted Rent, sft, 4 decimal places Tenant Rent Tenant 2 (New Lease Signed at BOY1) Rentable Space, sft Base Rent, sft, 4 decimal places 4 Tenant CPI Adjusted Rent, sft, 4 decimal places Tenant Rent Total Rent 1 2 PROJECTED INCOME Year Total Rent Expense Stop, Tenant 1 Expense Stop, Tenant 2 Tenant 1 Expense Reimbursement Tot Tenant 2 Expense Reimbursement Total Reimbursements Potential Gross income Vacancy Effective Gross Income SUMMARY OF OPERATING EXPENSES Operating Expendtiure Management Fee Total Expenditure PROJECTED NET OPERATING INCOME Year Effective Gross Income Total Expenditure NOI 2 Given LTV or DCR and NOI1, Calculation of Mortgage Loan and Future Loan Balances NOI1 DCR DS, Annual DS, Monthly 0 1 2 3 Year PMT (=DS, Monthly, given DCR and NOII) Mortgage Rate, Per Month, in decimal Amortization Period, Years FV PV=EOY Mortgage Loan Balance ol 1 2 3 Year NOI Debt Service Equity BTCF from Operation REV Value Selling Cost Mortgage Balance Equity BTCF from Sale Equity BTCF, Overall Equity BTIRR