paper do today part of a project

Project #2: Investment in an Income Producing Property.

In this report you will consider a hypothetical purchase of a real estate income producing property and evaluate the expected levered before tax returns on a property of your choice. Ultimately, you should decide whether committing your capital to the real estate property that you considered is a wise decision. You will be working on this assignment in a group of three to five students. The assignment is due on or before February 24th at 11:55 p.m. EST. By that time you should submit an electronic copy (via email) of your assignment. If you turn your assignment late, 10% will be deducted from your grade for every calendar-day delay.

Your complete assignment should read and look like a professional report and include the following sections:

1. Short introduction – Tell the reader what she/he is about to read.

2. Property description – Identify and describe an income producing property that you would be able to purchase with a $2,500,000 down payment. You are expected to hold this investment for eight years. You may use the entire $2.5M but do not have to. (However, a certain percentage of the property must be financed. That is, you can not buy the property with 100% cash). You can evaluate any property you would like and you are not limited to a specific location. I recommend using a website such as www.Loopnet.com to search for your property.

3. Assumptions – Make reasonable assumptions about the NOI growth rate, terminal growth rate, mortgage interest rate, required rates of returns, down payment and terminal cap rate. All assumptions should be justified in the text. To construct your assumptions you are encouraged to use your class notes, documents from the course’s website and the internet. (You may assume without justification that selling expenses are 4%. You may also assume financing with a 10-year interest only fixed rate loan and DCR of no less than 1.3). For this project you may assume that the NOI reported by the seller (or the implied NOI reported, given the asking price and the reported CAP) is correct and no due diligence is required.

4. Before tax expected return – Using an Excel spreadsheet, determine the “before tax” annual expected rate of return on your capital.

5. Max price – Based on the scenario above, calculate the absolute maximum price you are willing to pay for the property. Obviously, you will never tell this to the seller, but it is important to have this number in mind when/if you are ready to negotiate the price you pay for the property.

6. Sensitivity analysis – Consider and analyze two additional scenarios (one optimistic scenario and one pessimistic scenario). In each scenario you will need

to change the NOI and/or NOI growth and/or the terminal CAP rate. You will need to articulate the reasons for the possible changes and their magnitude.

7. Conclusion – Summarize your findings. Do you think that you should commit your hypothetical funds to this income producing property?

Note: a snap shot of all Excel spreadsheets and calculations used to derive your result should be included in your report.

Deliverables:

ONE Excel file of the spreadsheets and ONE Word file including text and snap shots from your Excel spreadsheet. The Word file should be organized as a complete and well flowing report.

Your assignment files should be named as the following: “THE SENDER’S NAME – Proj2_Excel” and “THE SENDER’S NAME – Proj2_Text”

Grading criteria:

Following the project guidance: 10%

Please make sure that your report follows the description provided above, including the names of files submitted and the material included in each section.

Professionalism and clarity: 15%

Pictures of the properties, margins, spacing, and fonts have been chosen to make the document attractive and easy to read. Tables, figures and graphs have been used to summarize data and effectively illustrate points. Headings are used judiciously to help reader find key sections in longer reports. Use a table of content and reference to page numbers and/or appendices throughout the report. Main Excel findings should be highlighted. It should look like a professional report. Contains few typographical errors and is well-printed.

Be brief and clear! The total length of the report must not exceed 10 pages.

Section 1: 5%

Section 2: 5%

Section 3: 15%

Section 4: 15%

Section 5: 10%

Section 6: 15%

Section 7: 10%

*PART 1 & 2  - Simona

*NOI growth rate - Alina

*terminal growth rate - Mohammed

*mortgage interest rate - Robert

*required rates of returns - Khalid

*terminal cap rate - Jonathan

*4 - Before tax expected return – Josh

*down payment – Let’s all agree on an appropriate down payment

*5 - Max Price - Robert