argus · buses also being available. with 50% of golden county’s population commuting to nyc, the...

1

ARGUS

University Challenge

California Polytechnic State University

Participants:

Bailey Dawson

Will Kieckhefer

Spencer Bergthold

Abraham Ahmed

Austin Ridge

2

AR G US CH A LLE NGE

Table Of Contents

Executive Summary ............................................................................................ 3

Market and Property Overview ........................................................................ 6

Market Overview ............................................................................................. 7

Property Overciew ........................................................................................ 10

Market Research ................................................................................................ 12

National Economic Outlook ............................................................................ 14

Investment Scenarios ........................................................................................ 18

Scenario A ...................................................................................................... 19

Scenario B ...................................................................................................... 24

Scenario c ............................................................................................. 27

Financial Modeling Strategy ........................................................................... 28

Assumptions .................................................................................................. 29

Results ............................................................................................................. 36

Final Recommendation .................................................................................... 37

Appendix ............................................................................................................ 39

Bibliography ....................................................................................................... 52

3 ARGUS Challenge NortheasternVille

EXECUTIVE

SUMMARY

4

Mass urbanization has become increasingly prominent in today’s day

in age and like many trends, there are both positive and negative

externalities associated with this movement. While many individuals

are attracted to the all-encompassing urban landscape, many find that

the negative factors of big-city living, far outweigh the positive

factors. The outlying regions of major metropolitan areas usually offer

an array of different amenities, a slower pace, generally a safer

environment, and a greater sense of community. These traits are

exactly what makes Northeasternville a desirable place to live.

The investment opportunity in question, is a mixed-use asset in the

small town of Northeasternville, which is located approximately 35-40

minutes outside of New York City. Northeasternville has a bolstering

economy and is expecting continued growth throughout the coming

years. Moreover, the city has been funneling money into renovating

and revitalizing community amenities to further the intended

expansion efforts. The town is situated around the rapid rail system

(Strange Urban Railroad) which connects Northeasternville to NYC,

simplifying the commute and ensuring accessibility to all residents.

The ownership group will likely have opportunities to dispose of this

asset given the potential influx of investors seeking lucrative

investment opportunities in the areas surrounding NYC.


EXECUTIVE SUMMARY

Background

5

The CP Development team has been hired to analyze various investment options in regards

to the 3 story mixed-use building in the town of Northeasternville.


EXECUTIVE SUMMARY

Investor Options

Scenario A

Invest in subject property

and hold until market

improves before selling

at a profit.

Scenario B

Invest in subject

property, make

improvements to

upgrade the building,

and sell at a profit before

market downturn.

Scenario C

Decline this investment

opportunity all together.

Recommendation After much deliberation, our team is

confident that we have identified the

most lucrative and overall beneficial

investment plan for our clients. We

have thoroughly analyzed all potential

investment opportunities and creative

alternatives, taking into account

projected economic conditions,

redevelopment opportunities, and local

market conditions. We believe that

scenario A is by far the most

advantageous option and we would

urge our clients to pursue this

investment path.

Scenario A Scenario B

Gross Sale Price $ 2,526,121.00 $ 2,097,344.00

Adjusted Gross Sale Price $ 2,526,121.00 $ 2,097,344.00

Selling Cost $ (101,045.00) $ (83,894.00)

Net Sales Price $ 2,425,076.00 $ 2,013,450.00

Less: Loan Balance $ 926,195.00 $ 1,233,476.00

Net Proceeds from Sale $ 1,498,881.00 $ 779,974.00


MARKET AND PROPERTY

OVERVIEW

7

Northeasternville is located in Golden County, which has a total population of 1.5 million

people. Northeasternville lies 20 miles outside of New York, New York and is

approximately a 30-45 minute train ride from the cities center. Specifically,

Northeasternville has a population of 15,000 people and density of 6,500 people per square

mile, which is much lower than Golden County averages.

ARGU S C HALL ENG E

MARKET OVERVIEW

In recent years, Northeasternville has seen positive growth and has become an increasingly

popular city with several million dollars in new funds being put to use to revitalize the

town. These funds will be used to improve downtown Northeasternville, represent a

diverse community and improve public transportation to large cities. Northeasternville is

currently experiencing a large demographic shift with the older generation downsizing and

millennials purchasing properties near the downtown area. The demand for housing close

to the downtown area is leading to residential houses being sold at a much higher cost than

normal regional rates. As a result of this heightened demand, both multifamily

developments and single family homes near the downtown area are appreciating.

Northeasternville

Market Analysis

8

SURR

One big addition to Northeasternville is the construction of

the Strange Urban Railroad (SURR). This railroad will allow

for transportation from Northeasternville to NYC as well as

transportation through Golden County with connecting

buses also being available. With 50% of Golden County’s

population commuting to NYC, the SURR allows for a

realistic and timely commute for these residents.


MARKET OVERVIEW

Unemployment

Northeasternville has experienced a 5% unemployment rate

over the past 12 months which is 1% greater than the

current US rate. This rate is subject to increase with rumors

of an international fabric company returning to its original

country. If this happens, we expect to see the

unemployment rate increase by 10 to 50 basis points.

Market Analysis

Of Northeasternville’s

residents commute to NYC

Unemployment rate

9

Office Market

Northeasternville has seen a decrease in new

office development in recent years. The

vacancy rate for the Northeasternville office

market is around 5% with many mixed-use

projects in Downtown Northeasternville

boasting a 0% vacancy rate. The office market

is rich with small, local, and entrepreneurial

businesses. Asking rents for office range from

$25 to $30 per square foot for five to ten year

lease terms and are typically full-service.


MARKET OVERVIEW

Retail Market

In Golden County, the retail market

continues to flourish with vacancy rates as

low as 3%. Space allocation is larger for retail

tenants compared to office tenants in mixed-

use assets, with retail space housing national

and well renowned tenants that serve a large

portion of the population. Average asking

rents for retail space ranges from $27 to $35

per square foot, commonly structured as

triple net leases.

OFFICE RETAIL

Market Analysis

5% VACANCY

3-5% VACANCY

10

Property Details

The ½ acre subject property is located at the

intersection of Main Street and Railroad Avenue in the

ever-growing city of Northeasternville in Golden

County. The building was constructed five years ago,

and consists of ground-floor retail shops and two

stories of office space above, totaling nine units. The

property is in an ideal location, situated roughly two

blocks from the rail station, which is frequented by

commuters that travel between Northeasternville and

New York City. The property is also near other local

retailers, town amenities and multifamily complexes,

which insinuates that the property is subject to ample

foot traffic on a daily basis.


PROPERTY OVERVIEW

Subject Property

Note to Investors

There are some evident

inconsistencies in regards to

the given age of the building,

as some of the leases

technically began prior to the

date of construction. We

would like to be cognizant of

this, so furthermore, we will be

making the assumption that

the building was actually

constructed 9 years ago, rather

than 5. This can be seen in the

next page on the Tenant Mix

table.

11


PROPERTY OVERVIEW

Tenants

Retail tenants include a bank branch, fine jeweler and fast food. Office tenants consist of

various firms such as travel agencies, life insurance, retirement and financial services as seen

below. The tenant mix is fairly diversified which should act as assurance to the landlord that

no singular industry has a strong hold within the building and will greatly affect building

occupancy if there are industry disruptions. Ideally, a mix as such will be maintained if the

building is decidedly bought and held as an asset.

Tenant Mix

Tenant Square Feet % Share Lease Expiration

Retail

Titan Fine Gems 1,250 9% 12/31/2022

Banner's Green Machine 1,500 11% 12/31/2020

Stark Bank & Trust 1,695 12% 12/31/2019

Office

Knowhere To Go 1,565 11% 12/31/2023

Bifrost Transit Services 1,850 13% 12/31/2022

Plant Your Groots Real Estate Agents 1,280 9% 12/31/2020

Shield Strategies, Ltd. 1,565 11% 12/31/2021

Visionary Vanguard 1,252 9% 12/31/2019

Mjolnir Renovations 1,878 14% 12/31/2020

Leases

There are a variety of different in-place leases that affect the overall NOI. Some of the leases

are 5 year whereas some are 10 year. The retail leases are all on a NNN basis, meaning

operating expenses are recoverable and the office leases are on a full service basis, whereas

the landlord does not recover expenses associated with the spaces that the office tenants

occupy. The expiration dates of these leases vary, though some leases expire at the same

time, meaning additional expenses will be incurred by the landlord.


MARKET

RESEARCH

13


MARKET RESEARCH

Baldwin, NY

Baldwin, NY offers great comparable demographics and affordable housing prices similar

to those of Northeasternville. With a slightly larger population of roughly 25,000 people,

Baldwin has experienced a two percent growth in median household income and a one

percent YOY growth in median property value at $356,300. Baldwin supports 11.8%

population by occupation working within retail trade, offering strong comparable data for

the retail market in Northeasternville. The job market has also increased 0.9% over the last

year. Similar to Northeasternville, Baldwin is home to a plethora of shopping malls and

retail centers making it an attractive comparable. The current unemployment rate in

Baldwin is also near equivalent to that of Northeasternville at 4%. Nassau County which

includes Baldwin has an estimated population of 1.36 million in relation to Golden

County’s 1.5 million. Moody’s Analytics is forecasting an economic growth pattern for

Nassau County in 2019. They expect positive, but slower economic growth in 2019 when

compared to 2018 which bears great economic news as comparable data for

Northeasternville.

Comparable Towns

Connection

According to research completed using CoStar software, these towns have comparable

demographics, vacancy rates and market rate rents. We have used these towns to assist in

projecting economic growth within Northeasternville as well as resiliency of the CRE

market.

Syosset, NY & Upper Montclair, NJ

Syosset, NY and Upper Montclair, NJ are two significant comparable towns to

Northeasternville, both within a 20 mile radius from New York. With a population of

approximately 19,232 and 11,731 residents, Syosset and Upper Montclair respectively

provide great comparable demographics for the future of Northeasternville


NATIONAL ECONOMIC

OUTLOOK

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ECONOMIC OUTLOOK

It has been 10 years since we dug ourselves out of the 2008 recession and today the economy is

as good as it has ever been. If this current economic expansion continues beyond Q2 of 2019, it

will be the first time since 1857 the United States hasn’t experienced a recession in a decade.

But, as we near this economic milestone, interest rates are being raised by the FED and some

say the probability of an economic disruption is as high as it was since before the Great

Recession. According to the National Bureau of Economic Research (NBER), recessions are less

frequent but more severe, so this bodes the question if we are on the brink of another disaster.

The question isn’t whether the economy will turn down, but rather how extreme it will be.

Economic downturns are inevitable and actually a healthy part of the economic cycle.

Historically, the average length of a growing economy is 3.2 years, while a recession lasts 1.5

years on average.

Research

According to a report from Wells

Fargo Securities Economics Group, at

the end of 2018 the CRE market is

fairly solid and the National Banking

system in not overexposed to

Commercial Mortgages. As of today,

we are at an all time high of

outstanding commercial mortgages,

totaling $2.8 Trillion. While this may

lead some to believe that banks are

indeed overexposed, with the addition

of residential mortgages, banks are

almost $3 Trillion less exposed than 2008. Past economic troughs and peaks: Source, Goldman Sachs

Investment Research

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ECONOMIC OUTLOOK

Effects on Real Estate

We are also able to look specifically into the Office and Retail market via a report from

Cushman and Wakefield that highlights the strength and weaknesses of these markets entering

into 2019. Starting with Office, the last quarter of 2018 produced the largest number of job gains

compared to the previous 3 quarters of 2018. Due to this increase, we saw net absorption nearly

double and reach an all time high since 2015. Also in the last quarter of 2018 demand for office

spaces outweighed the supply, causing vacancy rates to drop. In the 3 quarters prior we saw

vacancy rates remain relatively flat so this bodes well for the economy. Finally with massive

Tech growth, rise in number of REITS, and high construction rates Cushman and Wakefield

expects the U.S. office market to continue balanced growth. (Cushman Wakefield, 2018)

One big concern for the economy is the fear that increasing interest rates will lead to an

increase in cap rates. Yet, since the Fed has increased interest rates, cap rates have remained

low and it is anticipated that when they do start to rise, they will be offset by rising occupancy

and higher rents. Another factor that should limit and delay an economic downturn is the

current tax reform that benefits the CRE industry. This tax reform will boost property owners

revenue growth as well as create newly established “opportunity zones” and 1031 like kind

transfers. These changes in our tax system will attract additional capital into the industry,

bolster property prices, and apply downward pressure on cap rates.

This graph shows past and

predicted unlevered return on all

property types throughout the

past 30 years

Source: NCREIF, Cushman &

Wakefield Research

17


ECONOMIC OUTLOOK

After reviewing and analyzing many economic reports we believe that the economy will

experience a slight downturn, entering a normal recession, within the next 2 to 3 years. Even

though the current CRE economic outlook looks stable, due to an unknown political

environment, the FED raising interest rates and our economy being in the largest upswing in

history, we see this slowing in the next couple years. While we believe a downturn is

expected in the coming years, the economic recession will be brief, following historical trends

and the economy will recover within 1 to 2 years.

As for the current condition and outlook of the retail market, specifically in the New York

area, sales increased by 6.3% and are projected to grow by 4.3% in 2019. On the downside,

retail leasing pace slowed and asking rents have declined in all submarkets around NYC ,

but overall deal volume is still up 10%. Despite this, Cushman and Wakefield is

optimistic for 2019 with most experts believing retail submarkets have hit “bottom” and

with New York being the epicenter of retail, the market should regain momentum in

2019.

Effects on Real Estate


INVESTMENT

SCENARIOS

19


SCENARIO A

Scenario Details

Holding Period

For Scenario A, we are utilizing a 10-year holding period, given

that we are predicting the impending economic downturn to strike

in roughly 2-3 years from present day. This will allow our clients

to hold past the projected downturn and retain the cash flows

throughout the holding period.

Invest in the subject property and hold until market improves before selling at a profit.

Cap Rate: Purchase

Cap rates for similar mixed-use buildings within the market are

between 9.5%-11%. The reason we chose a slightly higher cap, is

because within 3 months of our estimated purchase date

(September, 2019), 2 of the tenant’s leases will be expiring,

meaning there is the possibility that the building will be 21%

vacant within months of purchasing. Moreover, we believe it is fair

to negotiate a higher cap because of the inconsistency between

actual construction date of the building( 9 years ago) and given

construction date (5 years ago).

Cap Rate: Sale

The anticipated cap rate upon sale is lower than cap rate upon

purchase, because we are assuming that developable lots in the

downtown area will not be in abundance in 10 years. This will

cause the market to shift in order to accommodate the altered

supply of centrally located real estate in Northeasternville. We are

also assuming the building will be fully leased upon sale.

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Economic Projection

We have projected that the impending economic downturn will occur in 2-3 years, meaning

that the economy will enter into a trough between 2021-2022. We believe that the economy

will only fluctuate 5-10%, which should not cause too much distress to the overall returns

on the asset, but we have accounted for this and modeled Scenario A with much more

conservative numbers in regards to renewal rates, vacancy rates, etc.


SCENARIO A

Special Considerations


Parking

The building is situated on a 1/2 acre parcel (21,780 SF) and the building footprint is just

roughly 4,600 SF meaning that there is approximately 17,180 SF that has not been

developed. We have assumed that there are 3 parking spaces allotted per 1,000 SF of built

space (total building area 13,835 SF). Per each parking space, we have assumed a number of

300 SF, which covers the individual stall and the associated common lanes throughout the

lot. Given the building square footage and the assumed parking requirements, in order to

meet said parking requirements, the subject property would have to have a parking lot that

is roughly 12,500 SF in size. Currently, the subject property meets these requirements, but

this is something to consider when looking into improvements, and/or redevelopment

opportunities.

21

Redevelopment Risk

The subject property is ideally located at the epicenter of Northeasternville, which has

been undergoing massive redevelopment efforts to revitalize the downtown area and

public amenities. When looking at the asset, we considered the building’s highest and best

use, all the while taking into account the public’s wants and needs within the town. We

agreed that the building could surely be redeveloped into a larger project that would fit the

city’s needs of improved multi-family housing, would develop upon the unique cultural

background of the town and play into the diverse consumer demographics in the area.

Though there is potential to redevelop, we think it unwise to immediately invest in a

planned redevelopment. With the stringent parking requirements, it would likely be

necessary to build out a parking structure, or receive approval from the city to not meet the

minimum parking requirements—both of these options would be costly and timely. Also if

redevelopment were to occur, the project would be underway during the anticipated

economic turbulence, which would cause for additional stress. Overall the CP

Development Team does not feel confident that the returns would exceed the risks.

We also considered the possibility of subdividing the lot and selling each plot separately to

maximize profits (one parcel being completely undeveloped). This option would be ideal if

the parking requirements were not as prohibitive.


SCENARIO A



22


SCENARIO A

Plan Overview

The CP Development team has decided that the best course of

action for scenario A would be to buy and hold the subject

property for 10 years. While holding the property we advise that

the ownership group works closely with city officials to entitle

the site for a larger mixed use building that includes, office, multi

-family and retail. We advise this course of action because the

demand for centrally located real estate in Northeasternville is

increasing, and is anticipated to continually increase throughout

the hold period. Upon disposition, the supply of downtown real

estate will be minimal which will drive up real estate prices. We

believe that entitling the site prior to sale, will incentivize

developers that are interested in entering into the market to

purchase the property at a lower cap rate, in turn, increasing

overall return on the asset. We do not believe that it would be

wise for an investor that does not have substantial capital

backing to undertake an overall redevelopment project, as it

would require a large initial investment to redevelop the

property and a considerable amount of time to entitle it. At this

moment in time, we believe that for our client, redevelopment is

far too risky and the associated returns on the investment would

not be enough to assume the affiliated risk.

Plan Overview


Analysis Begin Date

September 1st, 2019

Acquisition Date

September 1st, 2019

Resale Date

September 1st, 2029

6 months allocated to

acquire property

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ARGU S C HALL ENG E

SCENARIO A

Justification

Entitlements for

Redevelopment

Larger building: 4-6

floors with an overall

larger footprint on the

parcel

Mixed use concept with

office, multifamily and

connecting retail

Negotiate lower

parking/SF ratio and

maximize efficiency by

including Uber drop-off

locations near property

Office

We believe office space will be crucial to the success of the

project because office space is currently grossing the highest

rents per SF in Northeasternville. The vacancy for office space in

the neighboring Manhattan city was at an all time low in Q4

2018. We believe this demand for office space will stem from the

population increase and millennials desire to live near where

they work.

Multifamily

With the influx of new people moving into Northeasternville,

multifamily housing development will subsequently need to

increase to accommodate this shift. Given the site’s proximity to

both the Rail system and downtown, this location would be

ideal for millennials looking to get away from the busy life of

downtown NY but also enjoy similar amenities.

Retail

Retail will be developed to compliment the office space and

apartments. Retails will offer residents and employees a place to

grab lunch and groceries. This will also create unity within the

development; as residents, employees, and members of the

community gather for to interact with on another. Also, business

owners will be able to capitalize on the traffic from Main St. and

nearby public transportation.


24

ARGUS CHALLENG E

SCENARIO B

Scenario Details

Holding Period

For Scenario B, we are utilizing a hold period of 1.5 years, which

will bring us right up the brink of the expected economic

downturn. This timeline does have some flaws affiliated, as the

building will not be fully leased during the time of disposition,

though this will not greatly affect the overall return.

Invest in the subject property, make improvements to upgrade the building,

and sell at a profit before market downturn.

Cap Rate: Purchase

Cap rates for similar mixed-use buildings within the market are

between 9.5%-11%. We have chosen to utilize the same going in

cap rate for both scenarios, due to the comparable cap rates within

the market, the aforementioned potential vacancies and the

inconsistent information regarding the buildings actual

construction date.

Cap Rate: Sale

We have chosen a lower cap rate due to the capital improvements

that we suggest ownership makes in the allotted hold period. These

improvements should cause the asset to appreciate in value and

become more desirable for prospective tenants, which will allow for

rental increases in future years.

25

Economic Projection

Scenario B accelerates the investment

timeline quite a bit in comparison to

Scenario A. In Scenario B we are assuming

the same potential economic turbulence to

occur in 2-3 years, though in this scenario,

the asset will not be held through the

downturn, it will be sold right before,

which makes this option even more risky. If

the downturn happens prior to the set

disposition date, then the ownership will

experience a lower return and will likely

have a more difficult time selling the

building. This also prohibits the amount of

renovations that can occur, given that

everything would have to be completed in

roughly 6-12 months so that there would

still be an adequate amount of time to

market the building for resale.


SCENARIO B

Special Considerations Invest in the subject property, make improvements to upgrade the building,


Building Upgrades

The building is fairly new (regardless if it

was built 5 years ago or 9 years ago) and is

in no need of major renovations. In order

to maximize profits, we suggest upgrading

the exterior of the building and adding

modern finishes that enhance the

building’s aesthetic appeal. This would

align with the city’s efforts to revamp the

downtown area, without requiring the

ownership to fully redevelop the building

or make any major and costly

improvements. This also would not take

years to carry out, and would cause

minimal disturbance to the tenants.

Interior renovations could be problematic,

as these renovations would have to occur

while the building is leased up,

considering the stringent timeline.

26


SCENARIO B

Plan Overview

In regards to this scenario, we feel

that a $100,000 investment, will be

more than enough to make exterior

improvements to the building.

With this $100,000 we believe that

the building could be repainted,

modern fixtures could be added

(i.e. lights, building signage, doors,

etc.) and common area landscaping

throughout the property could be

improved. With these additional

features, the building is bound to

be more desirable. With low

vacancy rates throughout the town,

it is highly likely that whoever

acquires this building after these

renovations, could justifiably raise

the rents above market rates.

Plan Overview



Investment Timeline

100 K

INVESTMENT

27

Decline Scenario C

We considered not acquiring the subject property

because of the timing in the current cycle.

However, we ultimately think the property is

worth acquiring because it is trading at an 11%

cap. The subject property is fully leased and as

the local economy continues to improve we are

confident that we will keep vacancy at a

minimum. Overall this project poses limited

downside with huge upside, so the project should

be acquired.

ARGUS CHALLENG E

SCENARIO C


Decline this investment opportunity.

Market Shift

Research shows that the current market

for investment real estate will likely

shift to a buyer’s market throughout

2019. (CBRE Research, 2018) Because

the projected purchase date falls within

2019, and the cap rates within the area

are surprisingly high, it seems as

though this is a fairly stable, passive

investment opportunity . If the market

did experience a drastic shift that did

not support purchasing this asset, then

we would advise against the

investment. Although, very few

economists are predicting radical

changes in real estate prices, so there

are few foreseeable downsides to this

investment in terms of the overall CRE

market.

Selling

Difference

Purchasing

Difference

2018 23% < 33% Seller's

Market

2019 23% > 6% Buyer's

Market

Selling difference vs. purchasing difference, comparing 2018 to

2019: Source, CBRE Research, Americas Investor Intentions

Survey, 2018 and 2019.

2019

BUYER

MARKET


FINANCIAL MODELING

STRATEGY

29

Discount Rate

We are assuming the discount rate for both Scenario A and B

is 11% as the discount rates within Northeasternville vary in

accordance to the going–in cap rates (which are hovering be-

tween 9.5%-11%). The discount rate in past years has been

roughly 100 to 150 basis points higher than the going-in cap

rates.


ASSUMPTIONS

Given Assumptions

Mortgage Consideration

We have assumed a 75% Loan-to-value ratio at an interest

rate of 4.75%. The loan will be amortized over a 25-year

period .

11% DISCOUNT RATE

4.75% IINTEREST RATE

3% RENTAL GROWTH

RATE

Rental Growth Rates

We have assumed that rental growth rates in both scenarios

are the given base rent +3% thereafter. Market leasing

profiles define rent adjustments further.

5% GENERAL VACANCY

RATE

General Vacancy Rate

Vacancy rates within the town of Northeasternville average

between 3-5% for retail and 5% for office. CP Development

chose a 5% general vacancy factor as a percentage of potential

gross revenue.

30

ARGUS CHALLENG E

ASSUMPTIONS

Timing

Acquisition Date

We have allotted for an additional 6 months to close on the property. This will push the

acquisition date back to September 1, 2019. Our analysis begin date and discount period will

also begin upon purchase of property. Taking into account the additional time necessary to

close, will allow CP Development to ensure that numbers are being discounted accurately

throughout the hold period.

Property Resale Date

In regards to Scenario A, the hold period will be 10 years long, meaning that property resale

will occur in Septermber of 2029. The hold period in Scenario B is much shorter and lasts only

a year and a half, putting the property resale date in Februaryof 2021.


Property Purchase September 1, 2019 September 1, 2019

Hold Period 10 years 1.5 years

Property Resale September 1, 2029 February 1, 2021

Holding Periods

The holding periods for both scenarios have been determined by assessing the economic cycle

and determining when would be the most advantageous time to dispose of the asset. In

Scenario A, we have determined a hold period of 10 years, as this will mean the property is

fully leased-up at the determined resale date. In 10 years we are anticipating increased

demand for properties in downtown Northeasternville as well. In Scenario B we have set the

hold period to be 1.5 years which means that the property resale date will occur prior to the

projected economic downturn.

31

ARGUS CHALLENG E

ASSUMPTIONS

Lease Terms

Modeling Strategy

We have assumed that all tenant leases are beginning January 1st of the year specified in the

lease abstracts. This simplifies the anticipated tenant rollover that will occur upon lease

expiration, but will also affect the expenses incurred during the period of vacancy and/or

option. Ultimately, we do not anticipate that this modeling strategy will greatly affect how

much rollover risk exists throughout the hold period. All leases have been modeled with

options to extend past the hold period, and associated renewal rates defined in market leasing

profiles, per each scenario.

Tenant Name Lease Type Area Start Date End Date Base Rent

Visionary Vanguard Office 1,252 1/1/2010 12/31/2019 $ 38,728.53

Stark Bank & Trust Retail 1,695 1/1/2010 12/31/2019 $ 47,460.00

Bifrost Transit Services Office 1,850 1/1/2013 12/31/2022 $ 43,778.40

Knowhere To Go Office 1,565 1/1/2014 12/31/2023 $ 39,125.31

Plant Your Groots Real Estate Agents Office 1,280 1/1/2016 12/31/2020 $ 42,898.10

Mjolnir Renovations Office 1,878 1/1/2016 12/31/2020 $ 51,496.00

Banner's Green Machine Juices Retail 1,500 1/1/2016 12/31/2020 $ 52,004.70

Shield Strategies, Ltd. Office 1,565 1/1/2017 12/31/2021 $ 47,681.48

Titan Fine Gems Retail 1,250 1/1/2018 12/31/2022 $ 45,963.75

Total 13,835 $ 409,136.28

Visionary Vanguard and Stark Bank & Trust are the first tenants with leases that will expire

during the holding period in both Scenario A and B. Upon expiration, the tenants will have

the option to extend. If the tenants choose to exercise their option to extend, the rents will be

adjusted back to market rates, which are defined in the market leasing assumptions in each

respective scenario.

32

ARGUS CHALLENG E

ASSUMPTIONS

Market Leasing Assumptions

In comparison to our Scenario B, we have utilized more conservative numbers to reflect

the potential effects of the anticipated economic downturn which we are assuming will

occur in approximately 2-3 years. Each tenant has been modeled with options to extend

past the hold period, and the probability of renewal coincides with market demand for

that space type and the particular lease types that are coming due during the economic

downturn.


Scenario A Market Leasing Assumptions

10 Yr Retail 5 Yr Retail 5 Yr Office 10 Yr Office

Term Length (Years/Months) 10/0 5/0 5/0 10/0

Renewal Probability 80.00% 70.00% 50.00% 70.00%

Months Vacant 6 7 8 6

Market Base Rent $ / SF / Year $ / SF / Year $ / SF / Year $ / SF / Year

New 30 31 29 28

Renewal 30 31 29 28

Rent Increases % Increase % Increase % Increase % Increase

Fixed Steps 3.00% 3.00% 3.00% 3.00%

Free Rent (Months) Months Months Months Months

New 2 1 1 2

Renewal 1 1 1 1

Tenant Improvements $ / Area $ / Area $ / Area $ / Area

New 14 12 12 14

Renew 5 3 3 5

Leasing Commissions % by Lease Yr % by Lease Yr % by Lease Yr % by Lease Yr

New 5.00% 5.00% 5.00% 5.00%

Renew 2.50% 2.50% 2.50% 2.50%

Scenario A

33

ARGUS CHALLENG E

ASSUMPTIONS

Market Leasing Assumptions

The market leasing assumptions made in Scenario B are less conservative, as the property

will not be held throughout the market downturn—vacancy rates, and renewal rates are

not as volatile. We have also assumed higher renewal probabilities on leases types that

would be expiring during the downturn, as ownership would not be exposed to this risk.



Scenario B Market Leasing Assumptions

10 Yr Retail 5 Yr Retail 5 Yr Office 10 Yr Office

Term Length (Years/Months) 10/0 5/0 5/0 10/0

Renewal Probability 80.00% 85.00% 75.00% 70.00%

Months Vacant 6 6 6 6

Market Base Rent $ / SF / Year $ / SF / Year $ / SF / Year $ / SF / Year

New 30 31 29 30

Renewal 30 31 29 30

Rent Increases % Increase % Increase % Increase % Increase

Fixed Steps 3.00% 3.00% 3.00% 3.00%

Free Rent (Months) Months Months Months Months

New 2 1 1 2

Renewal 1 1 1 1

Tenant Improvements $ / Area $ / Area $ / Area $ / Area

New 14 12 12 14

Renew 5 3 3 5

Leasing Commissions % by Lease Yr % by Lease Yr % by Lease Yr % by Lease Yr

New 5.00% 5.00% 5.00% 5.00%

Renew 2.50% 2.50% 2.50% 2.50%

Scenario B

34

ARGUS CHALLENG E

ASSUMPTIONS

Expenses

Operating Expenses

The landlord has the ability to recover tenant reimbursements from all tenants that are signed

to a NNN lease. These expenses include insurance, utilities & heat, common area

maintenance, management & leasing, legal & professional and real estate taxes. The numbers

listed below express the accumulated recoverable expense per square foot on an annual basis.

However, the office tenants are not obligated to pay additional fees towards incurred

expenses, as they are signed to full service leases. In regards to the full service leases, there is

generally an associated recoverable fee for building operating expenses that is determined by

your pro rata share of the building, though in this case, we will omit the associated fee due to

a lack of historical expense data.

Recoverable Operating Expenses

Insurance $ / Rentable Area $ 0.46

Utilities & Heat $ / Rentable Area $ 4.30

CAM $ / Rentable Area $ 1.84

Managment & Leasing % of EGR $ 0.05

Legal & Professional $ / Rentable Area $ 0.27

Real Estate Taxes $ / Rentable Area $ 9.25

$ 16.17

Op. Ex. Adjustments

The operating expenses are adjusting on a yearly basis in line with the expense inflation rate

which is set at 3% annually. We believe that this will accurately reflect the anticipated

expenses throughout the duration of the hold periods.

35

ARGUS CHALLENG E

ASSUMPTIONS

Expenses

Capital Expenditure

Capital expenditure costs are not recoverable and are considered the sole responsibility of

the landlord. These costs include structural repairs & maintenance, capital reserves and any

other planned capital expenditures to improve the building. The costs listed in the table

below represent the capital expense costs per square foot on an annual basis. Similar to the

operating expenses, the capital expenses are being adjusted on a yearly basis by the expense

inflation rate, which is set at 3%.

Capital Improvements

In Scenario A, we have not allocated any additional

funds to be spent on building improvements, aside from

the predetermined amounts for reserves and building

upkeep. In Scenario B, we have included a one time

payment of $100,000 to upgrade the building’s exterior.

This payment will not adjust accordingly, as it is not

recurring.

Capital Expenses

Structural Repairs & Maintenance

$ / Rentable Area $ 1.22

Reserves $ / Rentable Area $ 0.34

$ 1.56

+ $100K SCENARIO B

36

ARGUS CHALLENG E

RESULTS

Discounted Cash Flow


Gross Sale Price $ 2,526,121.00 $ 2,097,344.00

Adjusted Gross Sale Price $ 2,526,121.00 $ 2,097,344.00

Selling Cost $ (101,045.00) $ (83,894.00)

Net Sales Price $ 2,425,076.00 $ 2,013,450.00

Less: Loan Balance $ 926,195.00 $ 1,233,476.00

Net Proceeds from Sale $ 1,498,881.00 $ 779,974.00


PV Unlevered $ 1,689,855 $ 1,704,792

PV Levered $ 2,118,176 $ 1,864,551

IRR Unlevered 10.16% 7.30%

IRR Levered 17.63% 14.89%

As can be seen in the above chart, scenario A returns substantially higher proceeds from

sale than scenario B does. This could be attributed to a few factors. One, being that a

portion of the loan is paid off throughout the hold period which is increasing the

ownership’s equity within the project while decreasing the outstanding debt to pay off.

Another reason that the Scenario A proceeds are considerably larger is because of the

inflated value of money. The proceeds from sale, in reversion, would showcase a smaller

gap between the two scenarios.

Proceeds from Sale

IRR and PV

Scenario A is returning higher IRR’s meaning that the overall yield of the asset during the

given time span is higher.


FINAL

RECOMMEDATION

38

Scenario A not only has a higher resale rate, but a

higher overall yield. Scenario B, on the other hand,

has a lot of associated risk and revolves around a

very strict timeline that leaves little room for error.

Even with adjustments to the overall rate of renewal

and accounting for market inconsistencies that may

arise due to holding through an economic downturn,

Scenario A still boasts better returns and seems like

the safer option. Moreover, it has been noted that

investors are actively seeking investment

opportunities near outlying regions of major cities.

Given Northeasternville’s proximity to New York

City, we can reasonably assume that the property

value within the town will appreciate over the years.

Overall, option B still does allow for quicker cash,

and there may be some upside to a quick

acquisition/disposition turn- around, but we prefer

to advise our clients with risks, returns and minimal

stress in mind.

ARGU S C HALL ENG E

Scenario A—All the Way

$100K SCENARIO B

FINAL RECOMMENDATION


$1.5M NET PROCEEDS

FROM SALE

17.63% LEVERED IRR

SCENARIO B


APPENDIX

40

A R G U S C H A L L E N G E

APPENDIX

Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11

For the Years Ending Aug-20 Aug-21 Aug-22 Aug-23 Aug-24 Aug-25 Aug-26 Aug-27 Aug-28 Aug-29 Aug-30 total

Rental Revenue Potential Base Rent 409,136 410,783 416,620 427,608 443,150 457,815 472,391 488,472 504,243 519,125 534,699 5,084,042

Absorption & Turnover Vacancy -20,013 -39,426 -16,050 -16,491 -8,220 -14,030 -45,705 -18,606 -8,181 0 -10,630 -197,352

Free Rent -8,167 -11,852 -4,012 -9,661 -5,343 0 -8,240 -9,386 -8,882 0 -6,910 -72,453

Scheduled Base Rent 380,956 359,505 396,558 401,456 429,587 443,785 418,446 460,480 487,180 519,125 517,158 4,814,237

Total Rental Revenue 380,956 359,505 396,558 401,456 429,587 443,785 418,446 460,480 487,180 519,125 517,158 4,814,237

Other Tenant Revenue

Total Expense Recoveries 67,100 69,652 76,017 74,628 80,647 83,066 80,746 88,125 86,514 93,491 90,176 890,161

Total Other Tenant Revenue 67,100 69,652 76,017 74,628 80,647 83,066 80,746 88,125 86,514 93,491 90,176 890,161

Total Tenant Revenue 448,056 429,157 472,575 476,084 510,233 526,851 499,192 548,605 573,694 612,616 607,335 5,704,399

Potential Gross Revenue 448,056 429,157 472,575 476,084 510,233 526,851 499,192 548,605 573,694 612,616 607,335 5,704,399

Vacancy & Credit Loss Vacancy Allowance -15,863 -15,767 -16,228 -20,613 -21,582 -17,900 -13,629 -18,660 -24,325 -30,631 -25,932 -221,129

Total Vacancy & Credit Loss -15,863 -15,767 -16,228 -20,613 -21,582 -17,900 -13,629 -18,660 -24,325 -30,631 -25,932 -221,129

Effective Gross Revenue 432,193 413,390 456,347 455,471 488,652 508,951 485,563 529,945 549,369 581,985 581,403 5,483,269

Operating Expenses Insurance 6,364 6,555 6,752 6,954 7,163 7,378 7,599 7,827 8,062 8,304 8,553 81,510

Utilities & Heat 59,491 61,275 63,113 65,007 66,957 68,966 71,035 73,166 75,361 77,622 79,950 761,942

CAM 25,456 26,220 27,007 27,817 28,651 29,511 30,396 31,308 32,247 33,215 34,211 326,040

Managment & Leasing 21,610 20,669 22,817 22,774 24,433 25,448 24,278 26,497 27,468 29,099 29,070 274,163

Legal & Professional 3,735 3,848 3,963 4,082 4,204 4,330 4,460 4,594 4,732 4,874 5,020 47,843

Real Estate Taxes 127,974 131,813 135,767 139,840 144,036 148,357 152,807 157,392 162,113 166,977 171,986 1,639,062

Total Operating Expenses 244,630 250,380 259,419 266,474 275,444 283,989 290,576 300,784 309,984 320,090 328,791 3,130,561

Net Operating Income 187,563 163,010 196,928 188,997 213,208 224,961 194,987 229,161 239,386 261,895 252,612 2,352,709

Cash Flow : Scenario A

41


APPENDIX Cash Flow : Scenario A Cont.

Capital Expenditures Structural Repairs & Maintenance 16,879 17,385 17,907 18,444 18,997 19,567 20,154 20,759 21,381 22,023 22,684 216,179

Reserves 4,704 4,845 4,990 5,140 5,294 5,453 5,617 5,785 5,959 6,138 6,322 60,247

Total Capital Expenditures 21,583 22,230 22,897 23,584 24,291 25,020 25,771 26,544 27,340 28,160 29,005 276,426

Total Leasing & Capital Costs 68,655 82,052 44,785 75,017 56,056 25,020 65,118 77,746 70,838 28,160 70,085 663,532

Cash Flow Before Debt Service 118,909 80,957 152,143 113,981 157,152 199,941 129,869 151,415 168,547 233,735 182,528 1,689,177

Debt Service

Interest First Northeastern Bank 59,440 58,129 56,753 55,312 53,800 52,215 50,553 48,810 46,983 45,067 0 527,062

Total Interest 59,440 58,129 56,753 55,312 53,800 52,215 50,553 48,810 46,983 45,067 0 527,062

Principal First Northeastern Bank 27,011 28,322 29,698 31,138 32,651 34,236 35,898 37,641 39,468 41,383 0 337,446

Total Principal 27,011 28,322 29,698 31,138 32,651 34,236 35,898 37,641 39,468 41,383 0 337,446

Total Debt Service 86,451 86,451 86,451 86,450 86,451 86,451 86,451 86,451 86,451 86,450 0 864,508

Cash Flow After Debt Service 32,458 -5,494 65,692 27,531 70,701 113,490 43,418 64,964 82,096 147,285 182,528 824,669

Cash Flow Available for Distribution 32,458 -5,494 65,692 27,531 70,701 113,490 43,418 64,964 82,096 147,285 182,528 824,669

42


APPENDIX Present Value : Scenario A

Discount Method:

Annual

P.V. of P.V. of P.V. of P.V. of P.V. of NOI to

Analysis Period Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow Book

Period Ending Before Debt Service @ 10.00 % @ 10.50 % @ 11.00 % @ 11.50 % @ 12.00 % Value

Year 1 Aug-20 118,909 108,099 107,610 107,125 106,645 106,169 10.08%

Year 2 Aug-21 80,957 66,907 66,303 65,707 65,119 64,539 8.39%

Year 3 Aug-22 152,143 114,307 112,762 111,245 109,756 108,292 9.91%

Year 4 Aug-23 113,981 77,850 76,451 75,083 73,745 72,437 9.17%

Year 5 Aug-24 157,152 97,579 95,391 93,262 91,190 89,172 10.07%

Year 6 Aug-25 199,941 112,862 109,832 106,897 104,053 101,296 10.50%

Year 7 Aug-26 129,869 66,643 64,561 62,553 60,615 58,746 8.83%

Year 8 Aug-27 151,415 70,636 68,119 65,703 63,383 61,154 10.03%

Year 9 Aug-28 168,547 71,481 68,622 65,889 63,277 60,780 10.16%

Year 10 Aug-29 233,735 90,115 86,119 82,318 78,700 75,256 10.98%

Totals 1,506,649 876,479 855,770 835,781 816,482 797,841

Property Resale @ 10.00 % Cap Rate 2,425,076 934,972 893,516 854,074 816,538 780,809

Total Unleveraged Present Value 1,811,451 1,749,287 1,689,855 1,633,020 1,578,651

Acquisition Costs (DCF)

Buyer closing costs 5,000 5,000 5,000 5,000 5,000

Total Acquisition Costs (DCF) 5,000 5,000 5,000 5,000 5,000

DCF Valuation 1,806,451 1,744,287 1,684,855 1,628,020 1,573,651

Percentage Value Distribution

Income 48.39% 48.92% 49.46% 50.00% 50.54%

Net Sale Price 51.61% 51.08% 50.54% 50.00% 49.46%

100% 100% 100% 100% 100%

* Results displayed are based on Forecast data only

43


APPENDIX Value Matrix : Scenario A

Key Valuation Policies

Valuation (PV/IRR) Date: September, 2019

Date of Sale: August, 2029

Discount Method: Annual

Period to Cap (at Sale): 12 Months After Sale

Value Matrix

Table Shows: 1) Unleveraged PV's 1) Net Sale Price 2) Exit Cap Rate

2) Unleveraged PV's $/SF 0 6,062,689 2,425,076 1,515,672 1,102,307

3) Going In Cap. Rates -2.00% 4.00% 10.00% 16.00% 22.00%

1) Cash Flow Discount Rate 10.00% -3,798,379 3,213,908 1,811,451 1,460,836 1,301,466

2) Resale Discount Rate 10.00% -274.55 232.30 130.93 105.59 94.07

-4.94% 5.84% 10.35% 12.84% 14.41%

10.50% -3,611,812 3,089,562 1,749,287 1,414,218 1,261,914

10.50% -261.06 223.31 126.44 102.22 91.21

-5.19% 6.07% 10.72% 13.26% 14.86%

11.00% -3,434,589 2,970,967 1,689,855 1,369,578 1,223,997

11.00% -248.25 214.74 122.14 98.99 88.47

-5.46% 6.31% 11.10% 13.69% 15.32%

11.50% -3,266,211 2,857,828 1,633,020 1,326,818 1,187,636

11.50% -236.08 206.57 118.04 95.90 85.84

-5.74% 6.56% 11.49% 14.14% 15.79%

12.00% -3,106,206 2,749,865 1,578,651 1,285,847 1,152,755

12.00% -224.52 198.76 114.11 92.94 83.32

-6.04% 6.82% 11.88% 14.59% 16.27%

Sales Price Calculation

NOI To Capitalize 252,612 252,612 252,612 252,612 252,612

Divided by Cap Rate -2.00% 4.00% 10.00% 16.00% 22.00%

Gross Sales Price 0 6,315,301 2,526,121 1,578,825 1,148,237

Adjustments to Sale 0 0 0 0 0

Adjusted Gross Sales Price 0 6,315,301 2,526,121 1,578,825 1,148,237

Cost of Sales 0 -252,612 -101,045 -63,153 -45,929

Net Sale Price 0 6,062,689 2,425,076 1,515,672 1,102,307


44


APPENDIX Loan Amortization : Scenario A

Loan Name First Northeasternwille Bank

Loan Type Amortizing

Loan Start Date 9/1/2019

Loan Term 300 Months

Amortization Term 300 Months

Beginning Interest Amortized Interest Principal Balloon Ending

Date Balance

Pro-

ceeds Rate Payments Payments Payments Payment Balance

Aug-20 1,263,641 0 4.75% 86,451 59,440 27,011 0 1,236,630

Aug-21 1,236,630 0 4.75% 86,451 58,129 28,322 0 1,208,308

Aug-22 1,208,308 0 4.75% 86,451 56,753 29,698 0 1,178,610

Aug-23 1,178,610 0 4.75% 86,450 55,312 31,138 0 1,147,472

Aug-24 1,147,472 0 4.75% 86,451 53,800 32,651 0 1,114,821

Aug-25 1,114,821 0 4.75% 86,451 52,215 34,236 0 1,080,585

Aug-26 1,080,585 0 4.75% 86,451 50,553 35,898 0 1,044,687

Aug-27 1,044,687 0 4.75% 86,451 48,810 37,641 0 1,007,046

Aug-28 1,007,046 0 4.75% 86,451 46,983 39,468 0 967,578

Aug-29 967,578 0 4.75% 86,450 45,067 41,383 926,195 0

Final Totals 1,263,641 0 4.75% 864,508 527,062 337,446 926,195 0


45


APPENDIX Valuation & Return Summary : Scenario A

Valuation Assumptions

PV Calculation Date September,

2019

Unleveraged Cash Flow Rate 11.00%

Unleveraged Resale Rate 11.00%

Leveraged Cash Flow Rate 11.00%

Leveraged Resale Rate 11.00%

Discount Method Annual

Hold Period 10 Years

Residual Sale Date August, 2029

Period to Cap 12 Months Af-

ter Sale

Exit Cap Rate 10.00%

Gross-up NOI No

Selling Costs 4.00%

Return Summary

Total Return (Unleveraged) 3,931,725

Total Return to Invest (Unleveraged) 2.19

PV-Cash Flow (Unleveraged) 835,781

PV-Net Sales Price 854,074

Total PV (Unleveraged) 1,689,855

Initial Investment 1,791,319

NPV (Unleveraged) -101,463

% of PV-Income 49.46%

% of PV-Net Sales Price 50.54%

IRR (Unleveraged) 10.16%

IRR (Leveraged) 17.63%

PV-Cash Flow (Unleveraged) / % Total 60.41 49.46%

PV-Net Sales Price / % Total 61.73 50.54%

Total PV (Unleveraged) $/SF 122.14 100.00%

Sales Proceeds Calculation

Net Operating Income 252,612

Occupancy Gross-up Adjustment 0

NOI To Capitalize 252,612

Divided by Cap Rate 10.00%

Gross Sale Price 2,526,121

Adjusted Gross Sale Price 2,526,121

Selling Cost -101,045

Net Sales Price 2,425,076

Less: Loan Balance 926,195

Proceeds from Sale 1,498,881

Pv of Net Sales Price 854,074

46


APPENDIX Cash Flow : Scenario B

Forecast Forecast Forecast Forecast

Year 1 Year 2 Year 3

For the Years Ending Aug-20 Aug-21 Feb-22 Total

Rental Revenue Potential Base Rent 411396 414405 208362 1034163

Absorption & Turnover Vacancy -14526 -19713 -8025 -42264

Free Rent -8534 -11852 0 -20386

Scheduled Base Rent 388336 382840 200337 971513

Total Rental Revenue 388336 382840 200337 971513

Other Tenant Revenue Total Expense Recoveries 67100 71728 38009 176836

Total Other Tenant Revenue 67100 71728 38009 176836

Total Tenant Revenue 455435 454568 238346 1148348

Potential Gross Revenue 455435 454568 238346 1148348

Vacancy & Credit Loss Vacancy Allowance -19685 -19961 -8194 -47839

Total Vacancy & Credit Loss -19685 -19961 -8194 -47839

Effective Gross Revenue 435750 434607 230152 1100509

Operating Expenses Insurance 6364 6555 3376 16295

Utilities & Heat 59491 61275 31557 152322

CAM 25456 26220 13503 65180

Managment & Leasing 21788 21730 11508 55025

Legal & Professional 3735 3848 1981 9564

Real Estate Taxes 127974 131813 67884 327670

Total Operating Expenses 244808 251441 129809 626058

Net Operating Income 190943 183166 100343 474452

47


APPENDIX Cash Flow : Scenario B Cont.

Leasing Costs Tenant Improvements 19625 23798 0 43422

Leasing Commissions 24696 22600 0 47296

Total Leasing Costs 44320 46398 0 90718

Capital Expenditures Structural Repairs & Maintenance 16879 17385 8953 43217

Reserves 4704 4845 2495 12044

Exterior Ren Investment 100000 0 0 100000

Total Capital Expenditures 121583 22230 11448 155261

Total Leasing & Capital Costs 165903 68628 11448 245980

Cash Flow Before Debt Service 25040 114538 88894 228472

Debt Service

Interest First Northeasternwille Bank 59967 29491 0 89458

Total Interest 59967 29491 0 89458

Principal First Northeasternwille Bank 27250 14118 0 41368

Total Principal 27250 14118 0 41368

Total Debt Service 87217 43609 0 130826

Cash Flow After Debt Service -62177 70929 88894 97646

Cash Flow Available for Distribution -62177 70929 88894 97646

48


APPENDIX Present Value : Scenario B


P.V. of P.V. of P.V. of P.V. of P.V. of NOI to

Analysis Period Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow Book

Period Ending Before Debt Service @ 10.00 % @ 10.50 % @ 11.00 % @ 11.50 % @ 12.00 % Value

Year 1 Aug-20 25,040 22,763 22,660 22,558 22,457 22,357 9.60%

Year 2 Feb-21 59,230 48,950 48,508 48,072 47,642 47,217 4.18%

Totals 84,269 71,713 71,168 70,630 70,099 69,574

Property Resale @ 9.50 % Cap Rate 2,013,450 1,664,009 1,648,984 1,634,161 1,619,538 1,605,110

Total Unleveraged Present Value 1,735,722 1,720,152 1,704,792 1,689,637 1,674,685

Acquisition Costs (DCF)

Buyer closing costs 5,000 5,000 5,000 5,000 5,000

Total Acquisition Costs

(DCF) 5,000 5,000 5,000 5,000 5,000

DCF Valuation 1,730,722 1,715,152 1,699,792 1,684,637 1,669,685

Percentage Value Distribu-

tion

Income 4.13% 4.14% 4.14% 4.15% 4.15%

Net Sale Price 95.87% 95.86% 95.86% 95.85% 95.85%

100.00% 100.00% 100.00% 100.00% 100.00%


49


APPENDIX Value Matrix : Scenario B


Period to Cap (at Sale): 12 Months After Sale

Value Matrix

Table Shows: 1) Unleveraged PV's 1) Net Sale Price 2) Exit Cap Rate

2) Unleveraged PV's $/SF 0

5465080.207

2013450.602

1234050.369

889664.2197

3) Going In Cap. Rates -2.50% 3.50% 9.50% 15.50% 21.50%

1) Cash Flow Discount Rate 10.00% -6,251,520 4,588,308 1,735,722 1,091,590 806,973

2) Resale Discount Rate 10.00% -451.86 331.64 125.46 78.90 58.33

-3.05% 4.16% 11.00% 17.49% 23.66%

10.50% -6,194,971 4,546,982 1,720,152 1,081,836 799,790

10.50% -447.78 328.66 124.33 78.20 57.81

-3.08% 4.20% 11.10% 17.65% 23.87%

11.00% -6,139,184 4,506,212 1,704,792 1,072,213 792,702

11.00% -443.74 325.71 123.22 77.50 57.30

-3.11% 4.24% 11.20% 17.81% 24.09%

11.50% -6,084,147 4,465,989 1,689,637 1,062,719 785,709

11.50% -439.76 322.80 122.13 76.81 56.79

-3.14% 4.28% 11.30% 17.97% 24.30%

12.00% -6,029,846 4,426,303 1,674,685 1,053,352 778,810

12.00% -435.84 319.94 121.05 76.14 56.29

-3.17% 4.31% 11.40% 18.13% 24.52%

Sales Price Calculation

NOI To Capitalize 199,248 199,248 199,248 199,248 199,248

Divided by Cap Rate -2.50% 3.50% 9.50% 15.50% 21.50%

Gross Sales Price 0 5,692,792 2,097,344 1,285,469 926,734

Adjustments to Sale 0 0 0 0 0

Adjusted Gross Sales Price 0 5,692,792 2,097,344 1,285,469 926,734

Cost of Sales 0 -227,712 -83,894 -51,419 -37,069

Net Sale Price 0 5,465,080 2,013,451 1,234,050 889,664

* Results displayed are based on Forecast data

only

50


APPENDIX Loan Amortization : Scenario B

Loan Name First Northeasternwille Bank

Loan Type Amortizing

Loan Start Date 9/1/2019

Loan Term 300 Months

Amortization Term 300 Months

Beginning Interest Amortized Interest Principal Balloon Ending

Date Balance

Pro-

ceeds Rate Payments Payments Payments Payment Balance

Aug-20 1,274,844 0 4.75% 87,217 59,967 27,250 0 1,247,594

Feb-21 1,247,594 0 4.75% 43,609 29,491 14,118 1,233,476 0

Final Totals 1,274,844 0 4.75% 130,826 89,458 41,368 1,233,476 0


51


APPENDIX Valuation & Return Summary : Scenario B

Valuation Assumptions

PV Calculation

Date September, 2019

Unleveraged Cash

Flow Rate 11.00%

Unleveraged

Resale Rate 11.00%

Leveraged Cash

Flow Rate 11.00%

Leveraged Resale

Rate 11.00%

Discount Method Annual

Hold Period 1 Year 6 Months

Residual Sale Date February, 2021

Period to Cap

12 Months After

Sale

Exit Cap Rate 9.50%

Gross-up NOI No

Selling Costs 4.00%

Return Summary

Total Return

(Unleveraged) 2,097,720

Total Return to Invest

(Unleveraged) 1.15

PV-Cash Flow

(Unleveraged) 70,630

PV-Net Sales Price 1,634,161

Total PV

(Unleveraged) 1,704,792

Initial Investment 1,823,501

NPV (Unleveraged) -118,709

% of PV-Income 4.14%

% of PV-Net Sales

Price 95.86%

IRR (Unleveraged) 7.30%

IRR (Leveraged) 14.89% PV-Cash Flow (Unleveraged) / %

Total 5.11 4.14%

PV-Net Sales Price /

% Total 118.12 95.86%

Total PV

(Unleveraged) $/SF 123.22 100.00%

Sales Proceeds Calculation

Net Operating In-

come 199,248

Occupancy Gross-up Adjustment 0

NOI To Capitalize 199,248

Divided by Cap

Rate 9.50%

Gross Sale Price 2,097,344

Adjusted Gross

Sale Price 2,097,344

Selling Cost -83,894

Net Sales Price 2,013,450

Less: Loan Bal-

ance 1,233,476

Proceeds from Sale 779,974

Pv of Net Sales

Price 1,634,161


WORKS

CITED

53

Amadeo, Kimberly. “US Economic Crisis, Its History, and Warning Signs “. The Balance. November 20, 2018. https://www.thebalance.com/u-s-economic-crisis-3305668

CBRE. “ Americas Investor Intentions Survey 2019”. CBRE Research. https://www.cbre.us/research-and-reports/Americas-Investor-Intentions-Survey-2019

Cushman & Wakefield. “Global Investment Atlas 2019-2020”. http://www.cushmanwakefield.com/en/research-and-insight/2019/us-q4-2018-marketbeat

Chalmers, Maurice. Nassau County Legislature. 2019, Inter-Departmental Memo.

CoStar Market Analytics, www.costar.com/products/costar-market-analytics

“Distance from New York to…” .2019. https://www.timeanddate.com/worldclock/distances.html?n=179

DataUSA: Baldwin, NY. https://datausa.io/profile/geo/baldwin-ny/

DataUSA: Syosset, NY. https://datausa.io/profile/geo/syosset-ny/

DataUSA: Upper Montclair, NJ. https://datausa.io/profile/geo/upper-montclair-nj/#heritage

Domm, Patti. Goldman says this may become the longest economic expansion in history”. Market Insider. CNBC. May, 2017.https://www.cnbc.com/2017/05/08/goldman-says-u-s-economy-may-be-slowly-growing-into-the-longest-expansion-in-history.html

Fuller, Stephen. Economic Impacts of Commercial Real Estate, NAIOP. 2019 Edition. January, 2019.https://www.naiop.org/en/Research/Our-Research/Reports/Economic-Impacts-of-Commercial-Real-Estate-2019

Mohan, Nikhil. “U.S. Macro Model Briefing Note”. CBRE. January 31, 2019. https://www.cbre-ea.com/client-home/2019/03/05/u.s.-macro-outlook-and-forecast-scenarios-q4-2018

ARGU S C HALL ENG E

BIBLIOGRAPHY


THANK

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