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.

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 up to $5,000,000 down payment. You are expected to hold this investment for eight years. You may use the entire $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. I recommend using a website such as to search for your property.

3. Assumptions – Make reasonable assumptions about the NOI growth rate, terminal growth rate, mortgage interest rate 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 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.

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This report is based on the analysis of the value of a mixed-use building in New York. One of the most important characteristics of any investment is that the purchase price should be optimal. If the price paid to acquire the asset is very high, a seemingly profitable investment can also become a loss since the excessively high outflow could not be recouped in a profitable manner. The value of any asset is determined on the basis of the cash inflows that are expected to be generated by the asset. This principle has been used to conduct valuation of a real asset and determine its present worth.

Property description
The property that has been analyzed in this report is located at 213 Seventh Avenue in New York. The size of the building is 4,687 sq ft and there are 7 units. The sub type of the property is garden/low-rise and the property is priced at $6,950,000. The cap rate of the property is 4% and it is located in the heart of Chelsea. The advantages of this property is that it is located in an area where the footfall rate of consumers is very high and it is categorized as one of the busy areas in the region. Since the building is mixed-use building, it can be rented for various purposes and the expected income from the building is also expected to be high and growing. New York is amongst one of the busiest locations in the world and the property prices are expected to rise in the span of 8 years also as the economy is recovering from the sub-prime economic recession of 2007 and businesses are optimistic about new operations and activities....
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