Part I (Max 125 words total Part I)
Part I (Max 125 words total Part I):
Comp Sales Approach: Were given a list of transactions. Some transactions have Cap Rate data, some have Price per Square Foot. Some transactions are based on properties that are much smaller than the Civic Center, or geographically distant, or occurred far in the past.
Hint: Since technically Cap Rates are an important component of the Income Capitalization Approach, I recommend using Price Per Square Foot in this part of the analysis.
Step 1: Decide which transactions may be relevant.
Step 2: Make adjustments to the Price Per Square Foot based on differences between the Comparable Property and the Civic Center.
Step 3: Estimate the value of Civic Center based on your adjusted per square foot comps.
Part II (Max 125 words total Part II):
Income Capitalization Approach: Were given a 10-Year Pro Forma Operating Statement, prepared by the sellers representative, CBRE. As in any situation, the seller and/or sellers agent, would tend to overestimate the cash flow so as to achieve the highest sale price as possible. Theres no reason to think this dynamic would be any different; therefore, we should make adjustments to the Pro Forma as we see fit.
Hint: While we can scrutinize every line item in great detail, we are told that Dimas does not have much time before reporting back to her firm and deciding whether to make a bid, and for what amount. Therefore, I would recommend adjusting the 3 (or up to 5 max) items that would have the greatest impact on the bottom line. These items may include: Physical/Economic Occupancy; Capital Reserves; Property Taxes (considering the millage rate, new buyers property tax increase, and Californias Proposition 13) and Property Management Fees (which typically run 3-4% of gross revenue vs base year rate provided in the Pro Forma).
Part III (Max 25 words each, or max 125 total Part III):
After youve estimated the value by both methods, discuss the following qualitative items (max 50 words for each item below)
Location: Better or worse than competitive properties?
Age: How does the subject property compare to others nearby?
Credit Worthiness of Tenant: Can states credit quality change over time? Whats Californias track record?
Deferred Maintenance: Do you think there might be significant deferred maintenance that the buyer would have to pay for after purchasing the property?
Intangible Value of LEED Certification: Does it pay to be Green?
Part IV (Max 150 words total for Part IV):
What are the Pros and Cons of a Sale-Leaseback?
List 3 Pros and 3 Cons
Hint: Do your own web research or draw on material from previous Schack classes, etc.
Part V (Max 50 words total for Part V):
What would you recommend regarding your building (assuming you are making a separate decision for your single building) and why?
