Real estate case

· Did the student demonstrate an understanding of how to identify strengths and risks with the asset?

· Is the paper spell checked and grammar checked?

· Is the math correct in the XLS model?

· Are the conclusions noted in the memos clear, concise and to the point and based on an interpretation of the numbers but not reciting the numbers or stated facts?

· Save file LAST_NAME_SECTION_.MID_TERM.DOC

· Post to grading portal in Canvas by the stated due date. Papers will not be graded if submitted after the stated date and time.

Overview

The goal for this individual assignment is to allow students to demonstrate their comprehension of the learning outcomes for the course which are outlined below.

By the end of this course, students will be able to:

· To understand the residential market for houses and multi-family for rent, including buying, selling and financing them.

· To examine types of commercial real estate. Commercial real estate includes offices, industrial warehouses and retail shopping centers. How to finance and evaluate their performance and identify risks and returns.

Case Background

Background - It’s late Fall 2018 and having recently acquired their first multi-family investment the Temple grads now turn their attention to retail in order to add to their asset portfolio.

Searching both Co-Star and LoopNet, they located a single tenant leased retail property. It is located in suburban Philadelphia. They contacted the selling broker and requested information on the property. After signing a confidentially agreement, the broker provided the following information on the asset.

Address 5692 Rising Sun Avenue, Philadelphia, PA 19120

Listing Price Unpriced; broker priced the asset a month ago but received limited interest from prospective buyers.

Units 1

Gross Building Size 11,200 SF

Stories 1

Year Built 2006

Investment Highlights

· 10-years remaining on triple-net lease which means tenant pays real estate taxes, insurance and CAM. Landlord pays for property management and admin/legal.

· Annual rental increases throughout both the initial term.

· At the end of the lease there are 2 (five) year options to renew at market rent.

· Corporately guaranteed lease with Rite Aid (NYSE: RAD)

· Store sales are marginal, reporting a $275.00 per sf.

· Rising Sun has visibility and access to over 18,000 cars per day and Rite Aid is surrounding by a mix of national retailers such as Walmart, Home Depot, McDonald’s, Wells Fargo, Chick Fil A, Panda Express and Ross to name a few

· The asset is located at a signalized intersection and is 11 miles from downtown Philadelphia.

· Incredibly dense population, with over 412,000 within a 7-mile radius and over 865,000 in the 10-mile radius

Refer to the temple XLS for the format for the financial analysis.

Rent Roll as of October 2018

Underwriting

Operating Expense Inflation – 5% - not used in the model

Vacancy – 10%

Collection Loss – 0%

Real Estate Taxes - $1.00/sf, grows 1.5% per year

Insurance - $0.25/sf, grows 2.0% per year

Common Area Maintenance - $1.50/sf, grows 1.0% per year

Property Management – 10% of Effective Gross Revenue

Legal/Admin - $0.10/sf, grows 2% per year

Mission Statement

Holding Period – 7 Years from October 2018

Stated Discount Rate – 10.00%

Terminal Capitalization Rate – 8.0% (capitalize year 8 NOI)

Selling Cost - 5%

There is a need to $12,000 in working capital…hint add to balance sheet it means that equity will increase by this amount.

Physical Condition of the Asset

The property was constructed in 2006 and no major capital needs are required except for repaving the parking lot and was estimated to cost $10,250 in year 2…ONLY in year 2.

Lender

A member of your group received the following permanent loan quote.

Loan – 65% Loan to Value, based on a value of capping the first year NOI by 6%

Rate – 6.00%

Term – 10 years

Amortization - 25 years

Illustrations