Reference no: EM13564

Conduct analysis for a large pension fund that is evaluating whether or not to purchase the Standard Life Centre located at 121 King St W.

Financial Analysis

Step 1 - Prepare an estimate of property value using the information and assumptions given in Tables 1, 2 and 3 below.  You may need to make other assumptions to complete your valuation.

Step 2 - Conduct research to construct a more accurate set of assumptions for the items listed in Table 3. Explain and justify your assumptions. 

Step 3 - Re-compute the estimate of property value using the values in your new Table 3 and those in the existing Tables 1 and 2. 

The financial analysis section should be approximately 5 pages long, consisting mainly of text about your assumptions, plus your new table 3 and your computations of property value.

Table 1 - Rent roll

Tenant	Size in square feet (sf)	Rate per sf per year	Lease expiry date
Office1	208,000	24	2016
Office2	104,000	27	2020
Office3	158,000	30	2024
Vacant Office	12,000
Retail1	10,000	40	2015
Retail2	10,000	60	2020

Table 2 - Projected expenses for the year 2013

Category of expense	Amount
Taxes	$4,500,000
Operating costs and insurance	$4,500,000
Cleaning	$980,000
Utilities	$2,560,000

All leases are triple net.  (Note/hint:  this is extremely important in your model.)

 Table 3 - Assumptions

Growth in rental rates	2%
Rate of vacancy and collection loss	1%
Growth in expenses	2%
Length of holding period	10 years
Terminal cap rate at disposition	7%
Selling costs as % of price	2%
Discount rate	5.5%
Rental rate on renewal	Same as existing rate.