Real estate valuation

You are analysing potential commercial real estate investments. Selected data on an office building – Property A is presented below. You are required to calculate the value of Property A utilizing the discounted cash flow method.

6-Year Net Operating Income (NOI) and DCF Assumptions

NOI

Year 1: $2,775,840

Year 2: $2,859,115

Year 3: $2,944,889

Year 4: $3,033,235

Year 5: $3,124,232

Year 6: $3,217,959

DCF Assumptions

Investment Hold Period

5 years

Going-in Cap Rate 5.25%

Terminal Cap Rate 6.00%

Discount Rate 7.25%

Income/Value Growth Rate Constant