Question: Your company is interested in acquiring a 620-acre tract of development land for a master-planned community. You anticipate that the entitlement process will take between three and five years due to multiple issues surrounding the property.

1. (2 points) Your company is interested in acquiring a 620-acre tract of development land for a master-planned community. You anticipate that the entitlement process will take between three and five years due to multiple issues surrounding the property. You estimate that the value of the land at acquisition is $85,000 per acre. Your investors are concerned about the value of the land during the entitlement process. You estimate that the land will appreciate at a rate of 2.5% per year during the entitlement process. What will the land be worth at the end of year 3, year 4, and year 5?

Yr.3.                                                    Yr. 4.                                                         Yr. 5.                                                             

2. (2 points) You just inherited a 16,000 square foot, debt free building occupied by Walgreens. The lease has exactly 12 years remaining and generates $18.00 per square foot in NOI through the term of the lease. As this inheritance was unexpected, you have decided to route all of the income into a college savings account for your children. The account earns an average annual rate of 4.6%, and compounds annually. What will this income stream be worth at the expiration of the Walgreens lease?

3. (2 points) You recently acquired building that will require a new $120,000 HVAC system in three to five years. To be conservative, you anticipate incurring the expense at the end of year three. How much money will you need to save each month, in an account that yields eight percent annually, to cover the expense at the end of year three?

4. (2 points) You are considering an acquisition of a property that, upon stabilization, will be worth an estimated

$4,500,000. The costs to stabilize the property total $975,000, which would all be incurred immediately. However, stabilization would occur over a two-year period, due to market conditions. What would you pay for this property today to achieve a 12% annual yield?

5. (1 point) You are considering the acquisition of a 78,000 square foot office building that is leased to the NSA. The lease rate is flat for 10 years at $26.00 per square foot per year, and the building owner pays all expenses, which total $6.00 per square foot. The tenant pays the lease in a single lump sum annually. No vacancy is assessed due to the quality of the tenant, and there is no other income. How much are you willing to pay today for this property (based on NOI over the term of this lease) if you require a 9.5% annual yield?

6. (1 point) The office building in the foregoing problem can be financed at 70% of the present value of the NOI calculated above. The bank is willing to offer the loan at a 5.25% rate amortized over 20 years with monthly payments. Calculate the monthly payments and annual debt service.

Mo. Payments:                                          Annual Debt Service:                                                                        

7. (bonus point) The bank in the foregoing problem was unwilling to offer a loan term beyond the 10-year lease term. What will the balloon payment be at the end of the 10-year term?