Real Estate Finance:

You are the owner of a 85,000 square foot office building.You purchased the building five years ago for $14,750,000.

During that entire time the building was triple net leased to a tenant who was also responsible for all maintenance and capital upkeep.(triple net lease: Tenant pays all the expenses of the property including real estate taxes, building insurance, and maintenance.)

The net rent the tenant paid was flat at $19.00 per square foot per year.You have just negotiated a lease extension which will raise the rent to $22.00 per square foot for the next 5 years.

You believe that the building will then sell for $18,000,000.

If the sale is successful, what is your leveraged investment multiple assuming you obtain an interest only loan for 75% of value at the time of your purchase at an interest rate of 5%?

A. 2.32

B. 1.22

C. 1.77

D. 3.32