4. A real estate developer and operator plans to build a new high-rise office building in North Dallas. Comparable buildings last 60 years, but the developer plans to sell it after 20 years for 40% of the construction cost. For the first 20 years it can be leased as Class A office space. When the building is sold, then the land's cost will be recovered in full (land value is estimated to go up 2% per year). Here are the estimated cost: $20M $41M $6.4M 3% Land Building (500,000 square foot) Annual operating and maintenance - end of year payment Annual property tax and insurance % of initial investment) - end of year payment (a) If the company wants a 12% rate of return, what is the required annual leasing income for the whole building? Use the method of annual cash flow or the method of NPW [3 points) to find the solution. (b) Assuming an expected average occupancy rate of 90% (i.e., on average 10% of the building is vacant at all times), what is the minimum leasing price per square foot and year [.5 point]? Is this a reasonable price [.5 point]? (check the Web!)