0	1	2	3	4	5	6		Assumptions:
	Potential Gross Income		130,847	134,772	143,263	153,291	161,416	169,971		Rentable Building Area (SF)	8,067
	Vacancy & Collection Losses		-	1,348	1,433	1,533	1,614	1,700		Rent/SF, Yr 1	16.22
	Other Income		-	-	-	-	-	-		Vacancy Rate, Yr 1	0%
	Rental Concessions		-	-	-	-	-	-		Operating Expense Ratio	40%
	Effective Gross Income		130,847	133,424	141,830	151,758	159,801	168,271		Expense Recoveries (% of OpEx)	0%
	Operating Expenses		52,339	53,370	56,732	60,703	63,921	67,308		Renovations, Yr 1-2 (% of NOI)	50%
	Expense Recoveries		-	-	-	-	-	-		Renovations, Yr 3+ (% of NOI)	10%
	Net Operating Income		78,508	80,055	85,098	91,055	95,881	100,963		Rent Growth, Yr 2	3.0%
	Capital Expenditures		39,254	40,027	8,510	9,105	9,588			Rent Growth, Yr 3	6.3%
	Leasing Costs		-	1,348	1,433	1,533	1,614			Rent Growth, Yr 4	7.0%
	Operating Cash Flow		39,254	38,680	75,156	80,417	84,679			Rent Growth, Yr 5-6	5.3%
	Reversion Cash Flow		-	-	-	-	2,175,917			Vacancy Rate, Yr 2+	1%
1	Property-Before-Tax Cash Flow		39,254	38,680	75,156	80,417	2,260,596			Leasing Costs (% of Vacancy Losses)	100%
										Going-In Cap Rate	4.93%
										Going-Out Cap Rate	4.64%
	Present Value of PBTCF		36,686	33,784	61,349	61,349	1,611,774			Property Discount Rate	7%
2	Property Value (DCF)	1,804,943
3	Property Value (Direct Capitalization)	1,592,455

1. Based on the purchase price offered by the seller, what is the annual appreciation rate that youre projecting for this property?

a. Do you believe that this growth rate is a reasonable forecast? Why or why not?

2. Based on your DCF model and the purchase price offered by the seller, what is the NPV?

You talk to your lenders about investing in this project. They give you two options: A 20-year FRM with a 7% interest rate, 70% LTV, and $250,000 balloon payment; or A 15-year IO loan with a 6% interest rate and 60% LTV.

3. What are the different EBTCFs for these two loans?

4. Using these EBTCFs, what are the different NPVs?

5. What are the different unlevered and levered IRRs?