You have found a shopping center that looks like a great investment. The center is comprised of
160,000 square feet and comes with a 10,000sf stand-alone Pad that is leased to a well-known
fast-food restaurant under a long term lease. You plan on holding the asset for 10-years.
The primary building is comprised of 20,000sf of Anchor Tenants, 100,000sf of In-Line stores
and common area of 40,000sf. Approximately 50,000sf of free parking is available, though there
is a special Valet Service that generates $12,000 per year of income. Both the Anchor Tenant and
the In-Line stores contribute to the Common Area Charges, which are calculated based on a Load
Factor and each tenants’ annual Rent PSF. The Pad tenant does not contribute to CAM.
Occupied SF Base Rent Special Lease Provisions
In Line 100,000 $30.00 5.00% escalations per year starting 2014-2016
2017 forward, escalations of 10% per year
Rent Abatement of $50,000 in 2014 and $150,000 in
2017
Anchor 20,000 $15.00 2.00% escalations per year starting 2015
Tenant Improvement Allowance of $120,000 in 2014
increasing by 4.00% per year thereafter
Pads 10,000 $20.00 4.00% escalations each year
Valet Service N/A N/A $12,000 every year, no increases
Percentage Sales Anchor tenants are high-end retailers. Their rent of
$15.00psf is below market. As a result, the lease includes a
percentage of sales calculated at 10% of all Gross Sales over a
breakpoint of $500,000. Gross Sales in Year 1 are projected
to be $2,000,000, increasing by 7% per year thereafter.
Vacancy & Collection Loss 7% in Vacancy and 4% in Collections, both off PGI
Operating Expenses $1,174,058 in Year 1, increasing by 3% per year thereafter.
Snow removal is extra and costs $2.00psf annually.
Capital Improvements $150,000 in Year 1, increasing by 3.00% per year thereafter.
Leasing Commissions $75,000 in Year 1 and every three years thereafter.
General Assumption
Discount Rate: 7.00% Purchase Price: $35,000,000
Terminal Cap: 10.00% Debt Financing: Max 75% LTV, Min 1.20x DSCR
Selling Expenses: 2.00% Debt Terms: 4.00% fixed; 30-year amort.; 10-year term
Calculate:
- What is the Unlevered and Levered Cash-on-Cash Return, NPV, and IRR of the project?
- What is the DSCR and Debt Yield each year?