You are to perform and investment analysis on the purchase of Del Norte Terraces Medical Dental Center in Poway

. Review the Broker Presentation that is attached

.Please only use the broker package and DO NOT DISTURB THE BROKERS

.This broker has prepared a presentation package

. You are to use the broker assumptions and prepare a 5 year pro forma with revised assumptions

. You are also required to calculate the investment ratios and performance measures using the revised assumptions that are provided

.Assumptions:

- Offer/Purchase Price: $9,950,000

- In addition to the down payment, you will pay closing costs at the time of purchase of $20,000. Be sure to include these costs at the time of acquisition.

- Rents will grow at 3% per year.

- Exit Cap Rate of 5.50% using the NOI for year 6.

- Costs of sale at the end of year 5 are equal to 5% brokerage commissions,based on your exit sale price, plus $15,000 for “Other Costs of Sale”.

- Fixed operating expenses will increase 2% per year.

- Other operating expenses will increase 3% per year.
- Reserves/CapX Budget is constant.

- Financing: Loan amount is determined as the lesser of 65% of the purchase price or maximum Debt Coverage Ratio of 1.25.o

-Assume 4.25% interest, 30 year amortization and loan origination fee of 1.00%. Loan origination fees are paid at the time of purchase.

-Assume no prepayment penalties on either loan at the time of sale at end of year 5.

Here is the Broker’s reconstructed annual property operating data [APOD]:

Assume that the total of $214,127 operating costs consist of:Fixed Expenses for the first year are property taxes of $124,375, which are 1.25% of the purchase price plus $25,000 for insurance.Total Fixed operating expense are $149,375,the total of these two items.

Capital reserves are $10,000 per year.Other operating expenses are$54,752, the remainder of the total projected operating expenses of $214,127 for year 1 of your pro-forma.

Requirements:

- Use the assumptions provided to construct a pro forma for 6 years (since you need the NOI for year 6 to calculate the Sale Price at the end of year5). Start with Rental Income based on the current rent role. Rents will increase by 3% per year.
- Calculate the loan amount using DCR and LTV. What is the loan amount?Lender will allow the lesser of the two loan amounts that you have calculated.
- Calculate the net sale proceed at the end of year 5. Include your calculation of broker commissions and other sale costs of $15,000.
- Calculate the effective cost of borrowed funds for the 5 year holding period.Remember to adjust for the origination fee.
- You will purchase this property at a price that will produce a leveraged IRR of 14% [Required Discount Rate]. What price would you offer toget the 14%IRR on equity? Assume that the loan amount does not change.
- Complete the attached Answer Sheet.

-The unleveraged IRR is calculated on the cash flows with a loan amount of $0 [no debt financing]. -There are no operating income or expenses during year “0”. Rental income, etc., begin at the end of year 1.

- Obtain 2 sources of market rental data to determine if the brokers rent forecast is justified. Compare comparable properties to the subject property and make appropriate adjustments to your rental estimate. Assume that the property has an efficiency ratio of 95%. That means that the market rent you derive applied to 95% of the gross building area of 26,249square feet.What Gross Scheduled Income do you estimate? How will that impact the income?