For this question, you will using both the direct capitalization method and the DCF method to estimate the market value of an office building. Show all your work in an excel document! You have the following information: • The property has 50,000 sqft of leasable space • 25,000 sqft is leased to a tenant who is in year 4 of a 5 year lease, their contract rent is $31,000/month • 25,000 sqft is leased to a tenant who is in year 2 of a 5 year lease, their contract rent is $33,500/month • Both tenants have triple net leases (i.e. all operating expenses are paid by the tenants) • Once the tenants’ leases are up, you expect to renew each 5 year lease contract at the prevailing market rent • Year 1 market rent is $17/sqft on an annual basis with 3% growth per year. • The market discount rate for similar properties is about 10% • Assume a 5 year holding period • Assume the going-out cap rate is 1 percentage point above the going-in cap rate 

a) Calculate an estimate of the going-in cap rate (overall cap rate) based on the following information from 3 comparable sales. Assume comparables are weighted evenly.[2] Property NOI Sale Price 1 $736,000 $8,600,000 2 $792,000 $8,800,000 3 $686,400 $8,200,000

b) Estimate the market value using the direct capitalization method [4] 

c) Estimate the market value using the DCF method [2]

d) Which method do you prefer and why? [1]