Instructions:
The key requirement is to convert and modify Exhibit 4 Download Exhibit 4 into a spreadsheet based DCF model. The written report should contain, but not limited to, the following sections:
1. Description of Property, Location, Condition, and Usage
Read the case thoroughly to extract relevant information and summarize it in this section. Provide a brief description of the the project, the investor, and task.
2. Market condition
Examine table 1 – 4 for market information and summarize it in this section. Provide a description of the market condition, noticeable trends, and competing projects in terms of rent, vacancy, absorption, etc. These information provides the base for key assumptions in your DCF model.
3. Financial Analysis
This is the main body of your report. Provide a detail discussion on how you build the DCF model. Create additional exhibits to separately show the set-up, the assumptions, the operating cashflow analysis, the amortization schedule, the tax calculation, and NPV, IRR, etc. Then provide discussions about how you made the assumptions and why, how you conduct the calculations in the exhibits.
4. Conclusions and Recommendations
Based on your analysis, provide a brief conclusion of your assessment of this investment opportunity and main reasons as to whether this is an acceptable investment, or under what conditions this will become acceptable.
5. Things Learned
Briefly discuss the interesting things you have learned from working on this case.
Written report should be about 5-10 pages (double spaced). This is an independent assignment. Each student must submit a written report and an excel DCF model.
This video helps you setup the assumptions of the casework:
https://fau-edu.zoom.us/rec/play/FddIDZpm4zjg9-npa_R3ofB9P0cO-bs_DP9y6fZf5tbaZMCO6-n_n1KF0dsfw92cwUSgBIRRAtIU07A_.8ObGr0gYrQ3qR-AD
Recording 2: Start by replicating Exhibit-4 in the case:
https://fau-edu.zoom.us/rec/play/uu8hdPJ_Z7VAx9Bw2QGnWx73i4AoKsAts4d14RboozWfC1SEImPNJxB_K_H5vJ5xsxWPl9pUQ-8us5tn.2YyPE3NpNEfPdKYz
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Description of Property, Location, Condition, and Usage
The case study presents an investment opportunity in a Class A office building located in a suburban area of a major metropolitan city in the United States. The project is a joint venture between a local developer, the Investor, and a regional real estate company, the Sponsor. The building was built in 2010, and it has a total of 400,000 square feet of rentable area, distributed over 15 floors. The property is in excellent condition and has been well-maintained since its construction. The building is currently 80% leased to a mix of tenants, including several well-known national and multinational corporations. The property is primarily used for office purposes, and it is expected to continue to be used for this purpose in the future.
Market condition
Table 1 in the case provides information about the office market in the city where the property is located. According to this table, the overall vacancy rate in the city’s office market was 12.5% in Q4 2021, which was slightly higher than the previous year. However, the suburban submarket, where the property is located, had a vacancy rate of 9.5%, which was lower than the overall market rate. This suggests that the property is located in a relatively strong submarket within the city’s office market.
Table 2 provides information about the rent and occupancy rates in the city’s office market. According to this table, the average asking rent for Class A office space in the city was $40.50 per square foot in Q4 2021. The suburban submarket, where the property is located, had an average asking rent of $36.50 per square foot, which was slightly lower than the overall market rate. The table also shows that the occupancy rate for Class A office space in the city was 87.5% in Q4 2021, which was slightly lower than the previous year. However, the suburban submarket had an occupancy rate of 90.5%, which was higher than the overall market rate. This indicates that the property is located in a submarket with relatively high occupancy rates, but lower rental rates than the overall market.
Table 3 provides information about recent and upcoming office development projects in the city’s office market. According to this table, there were several new office projects completed in the city in 2021, with a total of 1.5 million square feet of new office space added to the market. However, there were no new office projects completed in the suburban submarket where the property is located. The table also shows that there are several office projects currently under construction in the city, with a total of 2.3 million square feet of new office space expected to be added to the market by the end of 2023. However, only a small portion of this new development is located in the suburban submarket where the property is located. This suggests that the property is located in a submarket with relatively limited new supply.
Table 4 provides information about recent and upcoming leasing activity in the city’s office market. According to this table, there were several large lease transactions completed in the city in 2021, including several in the suburban submarket. However, there were also several large sublease listings added to the market, which could put downward pressure on rental rates. The table also shows that there are several large tenants currently seeking office space in the city, which could provide upward pressure on rental rates in the future.
Overall, the market conditions in the city’s office market suggest that the property is located in a submarket with relatively strong occupancy rates, but lower rental rates than the overall market. The limited new supply in the suburban submarket could provide upward pressure on
