Ridge Business Center

Ridge Business Center is a warehouse$/$office property in Charlotte. The property includes a well$-$maintained building totalling $50,000$ sq ft in leasable area.

The property has been offered for sale by the current owner at asking price of $$5$ Million. As a Financial Analyst of XYZ Investors, you are expected to identify if the property will

be a good acquisition for the company. An investment must generate a minimum of $15\%$ IRR for XYZ Investors.

Please build a financial model using the assumptions below to provide an answer to the Management. Required sheets have been provided.

Investment Assumptions

Acquisition Date $01-$Jan$-21$

Holding Period $5$ years $*$ time for which the property is owned

Sale Date last day of $60$th month

Terminal Cap Rate $7\mathrm{.}5\%*$ This rate is used to determine Sale Price by the following formula: Sale Price$=5$th Year NOI$/$Terminal Cap Rate

Cost of Sale $2\%*2\%$ of Sale Earnings go to broker$/$lawyer

Loan Assumptions

Loan Start Date $01-$Jan$-21$

Term of Loan $5$ years

LTV $75\%*$ of Price

Interest Rate $4\mathrm{.}0\%$

Loan Fees $1\%$

Amortization Period $25$ years $*$ Calculate monthly loan payments, you will need an amortization schedule

Rent Assumptions

$1)$ Assume rents increase every year on first day of the calendar year

$2)$ Rents shown are Annual rents on a per square feet basis. Convert them to monthly rents and actual $ as and when required.

$3)$ NNN leases are triple net leases, tenant has to pay their proportionate share of CAM, taxes and insurance over and above the rent

$4)$ Consider Suite $1006$ as vacant for the entire duration of $5$ years

Rent Roll $($ As of $31$ July, $2020)$

Suite Leased Area Status Lease Start Date Lease End Date Annual Rent PSF Rent Increase Date Rent Increase Lease Type

$($sq$.$ ft$)($mm$/$dd$/$yy$)($mm$/$dd$/$yy$)($as of $31$ July, $20)($mm$/$dd$/$yy$)$ Annual $(\%)$

$100110,000$ Occupied $03-01-1803-31-28$ $$12\mathrm{.}1501-01-213\%$ NNN

$100210,000$ Occupied $06-01-1906-30-29$ $$11\mathrm{.}5001-01-213\%$ NNN

$100315,000$ Occupied $01-01-2001-31-30$ $$10\mathrm{.}7501-01-213\%$ NNN

$10045,000$ Occupied $03-01-1803-31-28$ $$1201-01-215\%$ NNN

$100510,000$ Occupied $06-01-1906-30-29$ $$1201-01-215\%$ NNN

$10066,000$ Vacant

Total $56,000$ $$10\mathrm{.}32$

Expense Assumptions

$1)$ All expenses are paid by landlord

$2)$ All expenses grow $2\%$ annually

Expense Assumptions

Expense Type Annual Expense $($$$)$

CAM $$25,000$

Taxes $$75,000$

Insurance $$25,000$

Utilities $$20,000$

Repairs $$45,000$

Total $$1,90,000$

Capital Expenditure

Year Annual Amount

$($$ psf$)$

$2021$ $$2\mathrm{.}00$

$2022$ $$1\mathrm{.}25$

$2023$ $$1\mathrm{.}00$

$2024$ $$1\mathrm{.}00$

$2025$ $$1\mathrm{.}00$

Qs $1.$ Please refer to the excel sheet for the case study $$ Ridge Business Center. Use functions of Excel wherever necessary, no macros should be used for the case study. Calculate Levered IRR on the investment using the data provided.

Answer:

Qs $2.$ Investor A & B both invested $$100,000$ in a private investment and were promised $10\%$ IRR.

$-$ A received $$15,000$ in Year $1$ and $$5000$ in Year $2$

$-$ B received $$10,000$ in Year $1$ and $$10,000$ in Year $2$

Both of them exited the investment at the end of $2$nd year. Even though both got $10\%$ IRR on their investments, what could be the possible reason for B$$s unhappiness?

Answer:

Qs $3.$ Bond yields are inversely related to Interest Rates. What is the explanation for this relationship?

Answer:

Qs $4.$ What is DSCR$?$ Why is it important to lenders?

Answer:

Qs $5.$ Our client is a real estate private equity company that focuses on multifamily acquisitions. A property we are looking at has a net operating income $($NOI$)$ of $$567,678.$ The asking price is $$10,650,567.$

What is the cap rate?

Answer:

Qs $6.$ Describe what a promote structure