This assignment is to create an analysis for purchasing a property, projecting rents, expense pass throughs, expenses, capital over a holding period through the sale. Below are is all the information that you need to do the calculations and determine the metrics behind the investment.
Market rent $32/sf for gross leases
$22/sf for net leases
Growth rate 2.5% annually for everything
Rent Roll
Tenant SF Rent/yr /sf Stop Lease Start Mo. Term Steps
Tenant A25,000$33.00 BY$9.40/sf 1 10 yrs3%/year
Tenant B30,000$29.00BY$8.50/sf 1 8 yrs $34/sf in yr 3
Tenant C 35,000 $22.00 Net 1 3yrs N/A
Tenant 10,000 $30.00BY $10.00/sf13 10 yrs $36/sf in month 57
Total
Base year (BY) The tenant will pay for expenses that have risen to a level above their expense stop. Net leases have a stop of zero, so they pay all reimbursable expense. (Expense – stop) x sf
Tenants A, B and D are modified gross with expenses passed through over a base year while tenant C is Net.
Vacancy/Credit Loss5% of PGI
Expense Category Expense per foot
Taxes $ 5.00/sf
R&M $ 1.00/sf
Insurance $ 0.25/sf
Utilities $ 2.00/sf
Payroll $ 0.85/sf
Security $ 0.50/sf
G&A $ 0.40/sf
Total Reimbursable$10.00/sf
Non Reimbursable
Management 3% of EGI
Assume zero rollover possibility. Downtime (vacancy at end of lease) 6 months
Total Capital at rollover 25/sf growing at inflation
From the above information, you should be able to create a proforma.
Reversion 7.5%
Discount Rate10.0%
Term 5 years
Amortization 30 years
Rate 4%rate
LTV 70%
Create a proforma for a five-year hold aggregating the cash flows from each lease.
Calculate
- Value
- Loan
- IRR
- Cash flow after debt Service
- Cash on Cash Return
- Debt service coverage Ratio
- Leveraged IRR
- Debt Yield
- Break-even ratio
How to begin
Start by creating a column for each month of the hold period and additional 12 months for the reveersion year. In these columns enter in the first line 1 increasing each month by 1.
The next line put in the dates. Starting with 1/1/19 seems reasonable.
Then for each lease put in the monthly rent that is due for each month.
Add a line for the sum.
Then put in the pass through that is due in each month for each tenant.
Add a line for the sum of the pass throughs.
Calculate andy other income by month.
Apply the vacancy for the property
Calculate EGI.
Enter in each column the appropriate expense for each line for each column.
Sum the expenses
Subtract the expenses from the EGI.
Frequently asked Questions
- Are pass-throughs income or expenses?
- pass throughs are amounts, that the landlord is through the terms of the lease able to pass off to the tenant, so it becomes income to the landlord.
- How are pass-throughs calculated?
- a net leases the tenant pays its proportional share of all expenses so if the building has 1 million in expenses and the tenant occupies 25% of the building then the pass through is 1,000,000 x .25 = 250,000.
- a gross with base year - is if the base year expense is 800,000 and current expense is 1,000,000, then the tenant would pay (1,000,000 - 800,000) x 0.25
- or 50,000.
- Is there a specific year stabilized year NOI should be calculated with?
- When all the space is under lease, certainly that is a stabilized year.