BACKGROUND

An investor is interested in purchasing a multi$-$tenant industrial building in Portland, OR which has an asking price of $\backslash (\backslash$$ $200\backslash )$ per SF$.$ Assume that, apart from the $\backslash (2\mathrm{.}5\backslash \%\backslash )$ purchasing cost, there are no additional acquisition$-$related costs. The building size is $\backslash (57,500\backslash$mathrm$\{$SF$\}\backslash ).$ It is currently leased to the following tenants:

$-$ Tenant $1$ occupies $\backslash (20,400\backslash$mathrm$\{$SF$\}\backslash )$ and currently pays $\backslash (\backslash$$ $23/\backslash$mathrm$\{$SF$\}/\backslash )$ year and the rent will increase by $\backslash (5\backslash \%\backslash )$ annually. The lease will expire at the end of year $2$ and based on conversations with the tenant, you can assume that the lease renewal probability is $\backslash (40\backslash \%\backslash ).$ Annual rent increases of $\backslash (6\backslash \%\backslash )$ can be assumed from year $3.$

$-$ Tenant $2$ occupies $\backslash (27,000\backslash$mathrm$\{$SF$\}\backslash ),$ and their current rent is $\backslash (\backslash$$ $24/\backslash$mathrm$\{$SF$\}/\backslash )$ year. The lease will not expire during the investment period. Rental increases of $\backslash (\backslash$$ $2\mathrm{.}5\backslash )$ per SF will occur at the beginning of year $3.$ There are no increases for the other years.

Note: Assume the current contract rents as the basis for your year $1$ potential gross income.

Real Estate Investment

The vacancy and collection losses for all the years are assumed to be $\backslash (4\backslash \%\backslash )$ of the potential gross income each year. The average market rent for industrial is currently $\backslash (\backslash$$ $21/\backslash$mathrm$\{$SF$\}/\backslash$mathrm$\{$year$\}\backslash ),$ and it is forecasted to increase at $\backslash (6\backslash \%\backslash )$ each year for the subsequent years. Renewing tenants receive a $\backslash (\backslash$$ $1\mathrm{.}50/\backslash$mathrm$\{$SF$\}\backslash )$ discount to the market rental rate.

The landlord covers $\backslash (50\backslash \%\backslash )$ of the operating expenses. Operating expenses are $\backslash (\backslash$$ $12/\backslash$mathrm$\{$SF$\}/\backslash )$ year in year $1$ and are expected to increase by $\backslash (4\backslash \%\backslash )$ each year $($expense inflation$).$ No capital expenses are assumed, and no tenant improvements and leasing commissions are incurred for new or renewing tenants.

Assume that the building is bought in January $2024$ and sold in December $2026,$ i$.$e$.,$ the investor expects to hold the building for $3$ years. The building is depreciated over $39$ years and the value of improvements $($building$)$ is considered to be $\backslash (80\backslash \%\backslash )$ of the purchasing price.

The property is financed with a $30-$year mortgage at $\backslash (6\mathrm{.}5\backslash \%\backslash )($compounded monthly$)$ with a loan$-$to$-$value ratio $($LTV$)$ of $70\backslash \%.$ No financing costs $($e$.$g$.,$ origination fees$)$ or discount points occur. Assume a going$-$out cap rate of $\backslash (6\mathrm{.}5\backslash \%\backslash )$ and an income tax of $\backslash (35\backslash \%\backslash ).$

Real Estate Investment

The potential gross income and rent calculations for all years; the implied market rent calculation; The vacancy and collection losses for years $1$ and $2$; the effective gross income for years $1$ and $2$; the operating expenses for years $1$ and $2$ ; the net operating income for years $1$ and $2$ ; the debt service in years $1$ and $2$ ; the before tax cash flow in year $1$ ; the depreciation for all the years; the interest calculation for all the years; the taxable income and tax for years $1$ and $2$; the after$-$tax cash flow for year $1$; the sales price and the mortgage balance after three years.

Use the Excel investment pro$-$forma outline provided for this project. You only have to explain and show the calculations for the amounts in the cells that are not blue.

The project will be graded using the grading guidelines for this project. Upload the Zoom link to your presentation. Do not use Google Drive or YouTube. Your camera should be on for the presentation. You do not have to submit your Excel file, only the link to your presentation in Zoom.