This project is:
The purchase price of this asset is based on buying an existing Class A office building that a Wells Fargo Bank as a tenant. Constisting of 3.92 acres, the office building sits on approximately 1 acre. The remaining 2.9 acres is entitled for an 148,000 square feet of development plust a parking structure
The asset could be purchased with Three Possible Business Strategies:
Alternative Exit Strategies would include:
Office Building: Our Argus financial model shows the current asset is worth $39,000,000 based on this 2014’s NOI of $2,598,631 at a 6.65 CAP. An alternative perspective on value is $39,000,000 based on a NOI of $2,598,631 at a 6.9 CAP ($37,661,318) plus a bonus payment to the seller for the additional entitled land.
Apartment Development: If the apartment development is added the project values greatly improve. The apartment project as a stand-alone asset is a very profitable venture in the highly desired Bay Area market.
Our Financial models suggests a 72 month multifamily development project would:
The equity IRR is higher than typically seen because we assume the initial purchase equity is all allocated to the office, no upfront land expense burdens the apartment development IRR.
In this scenario the apartment builds a parking structure that accommodates the office parking need.
Either asset could be retained long term or sold separately.
Combined Asset Performance: Our modeling has looked at the results if both assets are sold in month 72 (fall of 2020). The combined performance we see is:
Buyer / Investor must rely on its own Due Dilligence
Existing Office Building Acquisition:
|1.||Acquisition:||$39,000,000 (based on a 6.9 CAP of $2,598,631 2014 NOI)|
|3.||Revenue||$70,193,000 total revenue is comprised of $52,877,000 in CAP Sales Revenue and $17,316,000 Cash Flow from leasing|
|4.||Total project costs:||$49,412,000 (including brokerage and closing cost when we sell)|
|9.||Equity IRR & Multiple||18.66 & 2.6|
|1||Acquisition:||$0: Purchase price of building is based on NOI. This asset takes on the cost of building a new parking structure for both assets.|
|2.||Revenue||$74,002,000 total revenue is comprised of $64,500,000 in CAP Sales Revenue and $9,502,000 Cash Flow from leasing|
|3.||Total project costs:||$54,268,000 (including brokerage and closing cost when we sell)|
|9.||Equity IRR & Multiple||25.1 & 2.42|
|2.||Revenue||$144,196,000 total revenue is comprised of $117,377,000 in CAP Sales Revenue and $26,818,000 Cash Flow from leasing|
|3.||Total project costs:||$103,680,000 (including brokerage and closing cost when we sell)|
|7.||Mortgage||$64,380,000 ($26,000,000 to purchase Office, $38,380,000 for apartments after stabilized)|
|8.||Equity IRR & Multiple||$21.55 & 2.56|
This is an unlisted opportunity. We have been told the seller will accept a price based on the previously mentioned 6.9 CAP. He is seeking buyers and plans on selecting a buyer no later than June 30th.
We have been told we have he has a $35,000,000 offer that is based on a 30 Due Diligence and 10 day close that he is giving serious consideration to.
If we close in the third quarter of 2014 we should be in a position to start construction on the apartment development in the fourth quarter of 2015.
We suggest the appropriate duration of the project to be 72 months to maximize the IRR potential of the investment. However the office is stabilized, and the Apartment Stabilization is achieved around month 42.
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~ CA CLB B-861134 ~
~ CalBRE 01980301 ~
~ CalBRE 01744150 ~
~ OR REA 201008092 ~