Master of Business Administration Karthiga. D

A FINANCIAL ANALYSIS OF RETURNS FROM COMMERCIAL REAL ESTATE
PROPERTIES IN THE UNITED STATES

Done for
Project report submitted in partial fulfillment of the requirement of Pondicherry University for the
award of the degree of
MASTER OF BUSINESS ADMINISTRATION

Submitted By
KARTHIGA. D
(Reg No.1095526)
Under the guidance of
INTERNAL GUIDE: EXTERNAL GUIDE:

Dr. B. CHARUMATHI, Mr. MOHAMED ALI. A. S
Associate Professor Senior Analyst
Department of Management Studies Zenta Knowledge Services Pvt Ltd
School of Management Chennai.
Pondicherry University
DEPARTMENT OF MANAGEMENT STUDIES

SCHOOL OF MANAGEMENT
PONDICHERRY UNIVERSITY
PUDUCHERRY- 605 014
MARCH- APRIL 2011

DEPARTMENT OF MANAGEMENT STUDIES
SCHOOL OF MANAGEMENT
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PONDICHERRY UNIVERSITY
PUDUCHERRY-605014
CERTIFICATE
This is to certify that this project entitled “A FINANCIAL ANALYSIS OF RETURNS FROM
COMMERCIAL REAL ESTATE PROPERTIES IN THE UNITED STATES.” done for
ZENTA KNOWLEDGE SERVICES PVT LTD, CHENNAI, is submitted by KARTHIGA.D, II
year MBA (Reg NO. 1095526) to the Department of Management Studies, School of
Management, Pondicherry University in partial fulfillment of the degree requirement for the
award of degree Master of Business Administration and is certified to be an original and
bonafide work.
DR.R.P.RAYA DR.B.CHARUMATHI
Professor & Head of the Department
Place: Puducherry
Date:
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DECLARATION
I, KARTHIGA. D, Student of Department of Management Studies, Pondicherry

University, hereby declare that this project report titled “A FINANCIAL
ANALYSIS OF RETURNS FROM COMMERCIAL REAL ESTATE
PROPERTIES IN THE UNITED STATES” is an original work done by me and
submitted to the Department of Management Studies, for the award of Master
Degree in Business Administration. I further declare that any part this project itself
has not been submitted elsewhere for award of any degree.
PLACE:
DATE: Signature of the candidate
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ACKNOWLEDGEMENT
I am indebted to the powerful Almighty God for the blessings he showered on me and for
being with me throughout the study.
I place on record my sincere gratitude and appreciation to my project guide Dr.B.CHARUMATHI,

Reader, Faculty Advisor – Corporate Relations and Placements, Department of Management Studies,
for her kind co-operation and guidance which enabled me to complete this project.
I express my sincere thanks to Dr. R. P. RAYA, HOD, Department of Management Studies, School of
Management, Pondicherry University, who provided me an opportunity to do this project.
I am deeply obliged to Mr. MOHAMMED ALI, Senior Analyst,Zenta Knowledge Services Pvt Ltd,
Chennai, for his exemplary guidance and support for this project. I would also like to extend my
thanks to Ms. PRAVINA RAVINDRA, Senior Manager, Zenta Knowledge Services Pvt Ltd, Chennai,
for her support.
I take this opportunity to dedicate this project to my parents who were a constant source of motivation
and I express my deep gratitude for their never ending support and encouragement during this project.
Finally I thank each and everyone who helped me to complete this project.
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EXECUTIVE SUMMARY
Real Estate in India is investment, but Real Estate in US is business. It is like any stocks, bonds or any
other security. The market for real estate in US is booming over a period of time. The investment
done in US real estate is basically long term and the return is also high. Real estate finance and
Securitization has emerged the driving forces of Real Estate Industry.
The study emphasizes on valuation of US Real Estate, as the industry is highly organized and
structured, large holdings and that there is a distinct difference between residential and commercial
markets. The trend is also increasing in Indian market. But the importance given in the Indian market
is not as high as compared to the US market. The level of transparency is high in the US market.
This study is done to analyze the returns and estimate the value of a commercial property from
borrowers and lenders perspective. This valuation is triggered by various factors and the study
considers their influence on valuation.
The major factors influencing the valuation are the property characteristics, the markets and
submarkets, the base rental income, the escalations, the retails sales, Capitalization rate and the Market
leasing assumptions. These factors are considered as most important with regard to the Real Estate
Valuation.
The study is therefore useful for the lenders to determine the value of a property and calculate the LTV
(Loan to Value) and the borrowers to value their property to approach the Real Estate Financiers.
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TABLE OF CONTENTS
CHAPTER DESCRIPTION PAGE NO.
1 INTRODUCTION
1.1Introduction to the topic
1.2 Statement of problem
1.3 Objective of the study
1.4 Period of the study
1.5 Research methodology
1.6 Limitations of the study
1.7 Chapterization
2 PROFILES
2.1 Profile of US Real Estate Industry
2.2 Profile of Zenta
3 INVESTMENT IN REAL ESTATE &
FUNCTIONING OF RE INDUSTRY
4 ANALYSIS & INTERPRETATION
SUMMARY OF FINDINGS,
5 RECOMMENDATIONS &
CONCLUSIONS
5.1 General findings
5.2 Special findings
5.3 Recommendations
5.4 Conclusion
6 BIBLIOGRAPHY
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LIST OF TABLES
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INTRODUCTION
1.1 INTRODUCTION TO THE TOPIC:

Real estate is a legal term that encompasses land along with improvements to the land, such as
buildings, fences, wells and other site improvements that are fixed in location -- immovable. Real
estate law is the body of regulations and legal codes which pertain to such matters under a particular
jurisdiction and include things such as commercial and residential real property transactions. Real
estate is often considered synonymous with real property, in contrast with personal property.
The real estate industry in the United States mainly deals with three types of properties namely
commercial real estate, residential real estate, and industrial real estate.
This project titled, “A financial Analysis of Returns from Commercial Properties in the United
States” aims to study the factors influencing the US real estate value and the relationship between
those factors and analyzes the various valuation approach that gives the maximum yield through which
the income generation capability of a property can be determined. There are several factors which
determine the value of a property viz., rent, reimbursement, capital expenditure, probability, inflation,
occupancy, location, cost of capital etc.
1.2 STATEMENT OF PROBLEM

There has been a slowdown in the US real estate market over the last couple of years. The
process of slowdown came into prominence between the late summer of the year 2005 and summer
2006. The real estate dealers suffered from huge financial loss due to decrease in sales volume and
declining real estate prices. Any collapse of the U.S. Housing Bubble has a direct impact not only on
home valuations, but the nation's mortgage markets, home builders, real estate, home supply retail
outlets, Wall Street hedge funds held by large institutional investors, and foreign banks, increasing the
risk of a nationwide recession. The housing bubble has been the result of significant increase in
valuations of real estates. In this current scenario, this project aims to determine returns from
commercial properties and estimate the value of properties in the US. The purpose of this study is to
facilitate the investment decision of a client through a risk-return analysis of the income streams of
different Retail properties in the US Real Estate.
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1.3 OBJECTIVES OF THE STUDY
• To analyze the returns from various commercial real estate properties to facilitate the lending
decision.
• To arrive at estimates of value of the properties based on the DCF approach.
• To analyze the risk associated with the loan from the lender’s perspective.
• To analyze the credit worthiness of tenants.
1.4 SCOPE
The Scope of the Study is confined to US Retail Properties.
1.5 LIMITATION OF THE STUDY

The major limitations of this research are
 Only secondary data of last 5 years data for US is used for analysis.
 Projections are made only for a period of 5 years.
 This study is confined only to US Real Estate Industry. It gives suggestion only for
investor of the real property in the major cities and markets and not for the buyers
whose ultimate aim is to buy for living purpose and also not for brokers of real estate.
 Details such as the client’s name, the property name and address are not revealed, as it
would amount to breach of the confidentiality agreement between the company and its
client.
 Only commercial properties have been focused upon.
1.6 RESEARCH METHODOLOGY
This is a descriptive research which aims at evaluating the returns from a set of properties.
TOOLS USED
- Loan To Value
- Debt Service Coverage Ratio
- Number of Credit Tenants
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- Rollover Risk
1.7 Chapterization:
• The introductory chapter deals with a crisp introduction of US Real Estate Industry, statement
of problem, objectives of study, research methodology and limitations.
• Chapter 2 portrays the profiles of the US Real Estate Industry and Zenta Knowledge Services
Pvt. Ltd.,
• Investments in Real Estate & functioning of the industry are reviewed in chapter 3
• The data collected were compiled and analyzed in chapter 4.
• Suggestions based on findings emanated from the study were presented in the concluding
chapter 5.
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2.2 PROFILE OF ZENTA KNOWLEDGE SERVICES PVT. LTD.,
About Zenta
Founded in 2001, Zenta is a world-class knowledge process

outsourcing (KPO) and business process outsourcing (BPO)
Overview
and Company, offering a full range of back-office, voice and
on-site support solutions such as Credit Card Servicing,
Consumer Lending Servicing, Accounts Receivable
Management, Mortgage Servicing and Real Estate Capital
Market Analytics. The Company serves the following
verticals: Consumer Credit, Insurance and Financial Services,
and Commercial and Residential Real Estate.
With 4,500+ employees worldwide, Zenta has operations in six

locations across three continents. Zenta is a preferred
employer in India.
For further information visit www.zenta.com
Year Founded 2001
Executive Chairman Henry Hortenstien
Country Head Jaswinder Ghumman
Number of Employees 4500+
Global Headquarters New York City
Number of Facilities India: 4 operating centers
• 2 in Mumbai, and
• 2 in Chennai
USA Service delivery centers:
• Philadelphia, PA
• Charlotte, NC
• Dallas, TX and
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• Los Angeles, CA
Rank 6th in the 2004 NASSCOM Indian BPO survey
Notable Customers Fortune 1000 clients
Financial Services:
• 10 in the Fortune 500
• 7 in the Fortune 100
• 3 of the top 5 US banks
• 5 of the top 10 US banks
• 4 of the top 6 US credit card issuers
Healthcare
• Top three US healthcare system
Vertical Practices • Real Estate
• Financial Services
• Healthcare
Services • Credit Card Servicing
• Commercial Realty
• Residential Realty
• Account Receivables Management, and
• Healthcare Revenue Cycle Management
• ISO 9001:2000 certified
Quality Certification
• CMM Level 3 assessed
• SAS70 (2006) assessed
Vision & Mission

The May 2007 realignment of the Company’s services under the Zenta brand reflects the new
corporate vision of building a world-class Knowledge and Business Process Outsourcing Company
focused on the real estate and financial services industries. As a fully integrated global enterprise,
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Zenta now offers real estate and financial services customers a broad array of services from its centers
of excellence around the globe.
INDUSTRY AND SERVICES
Commercial Real Estate Services

Zenta's focused approach and industry expertise is unique among business process outsourcing
firms. Our senior management team averages over 20 years of real estate and financial services
experience with major balance sheet lenders, institutional investment firms, securitization programs
and loan servicers. Since its founding, our company has conducted analysis on more than 45,000
properties in over $1 trillion of commercial real estate transactions, provides servicing support on over
16,000 commercial loans each month and provides comprehensive research and information
management services for real estate lenders and investors.
Commercial Real Estate Services include

• Buy & Sell Due Diligence
• Lendor/Investor Services
• Commercial Mortgage Underwriting
• Finance and Accounting
• Lease Administration
Residential Mortgage Services

Zenta's Residential Services Group provides processing, servicing and operational support for
a variety of residential real estate services. Zenta’s team of residential mortgage professionals has the
operational experience to implement a program specific to your needs and processes. Examples of our
residential real estate capabilities include:
• Residential Master Servicing

• Broker Services
• Loan Origination and Underwriting
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• Loan Administration
• Default Services
• Repeatable Results
• Representative Clients
Technology Services
IT Services
Zenta provides a comprehensive range of IT services that are backed by years of experience in
complex, integrated BPO management and a thorough understanding of the industry verticals in which
we operate. Zenta's IT professionals are also extensively trained in client-specific implementation
methodologies creating a dedicated IT team, which you can allocate where needed.
With Zenta's ISO 9001 registration and a CMM Level 3 rating, you can be assured of
consistent, high quality solutions. In addition, Zenta's IT division is housed in a facility that features
high service availability and redundancy to ensure secure, dependable operations. Leading edge
technology platforms deliver fast, effective transaction processing.
In addition, Zenta's IT Services increase overall productivity through better quality SLAs and the use
of 24-hour production.
Zenta offers three-tiered IT solutions viz., Preferred Partner Program & Application Integration
and Solution Architecture
Informative Services
Zenta develops real estate information management & technology solutions to assist in client
assignments and portfolio monitoring. Applying customized research services & tailored web-based
applications, we deliver proprietary portfolio & third party data in a centralized format.
Our information service capabilities deliver relevant and timely information with unprecedented
speed, scale & savings to our clients.
Zenta information services team provides:
• Web-Based Information Management Applications
• Data Sourcing & Extraction Services
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• Customized Research Services
Health Care Services

Customer Lending Services
Group Focus - Consumer lending lifecycle services.
Representative Clients - Commercial/Investment Banks, Credit Grantors, Specialty Finance
Companies.
Products/Services
• Lead Generation
• Contact Strategy
• Outbound for Home Warranty, Checking Accounts, Home Equity Loans, Credit Insurance,
etc.
• Customer Service and Relationship Management
• Collections
• Custom Analytics
• Notice of Repossession / Foreclosure
• Adaptive Control
• Post-charge-off services
Revenue Care Services

In combination, Zenta and its partners provide the most highly trained, certified and qualified
professionals in the industry today, providing a comprehensive suite of revenue cycle services, along
with HIS and bolt-on technology expertise, including:
• Third party follow-up, all payers
• Self-pay follow-up including day-one
• Early-out receivables outsourcing
• Computer conversion projects with A/R protection
• Full business office, medical records & patient access outsourcing
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• Medical records transcription and coding
• Embedded process reengineering with each engagement
Among the key Zenta advantages are:
• Extensive Industry Expertise
• Sophisticated Networking Access
• In-depth Understanding of HIPAA and Regulatory
• On-site Presence
THE US REAL ESTATE INDUSTRY

Real estate plays a vital role in the US economy. Following are some of the facts and figures that
show the importance of the real estate sector to the overall US economy, according to a report as of
February 2005 prepared by Economic Intelligence Company:
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 In 2002, the real estate industry employed 1.56 million people in its various segments.
 Over the past two decades employment in real estate has grown more rapidly than the general
economy. Since1982, employment in the real estate industry has increased more than 60%, far
more than the 46% increase in total employment.
 In 2001, the real estate industry generated more than $66 billion in compensation for its
employees. That makes it one of the largest income producing industries in the country.
 The total value of commercial real estate in the US as estimated by the Department of
Commerce is $3.54 trillion dollars.
 Since 1992, the value of commercial real estate has increased by 67.5%, while GDP has
increased by only 59.6%
 The value of all real estate in the US is larger than the total GDP of every country in the world
except Japan. In fact, the total value of commercial real estate in the US is roughly equal to the
annual output of Germany, France, Sweden and Switzerland combined.
 In 2001, the real estate industry generated $326.6 billion in output, accounting for 3.24% of the
total output of goods and services in the US economy.
 The commercial real estate industry contributes more to the US economy than many other
large industries. In 2005, real estate’s contribution to GDP was almost three times as large as
the motor vehicle industry, twice as large as the chemicals industry and larger than the
communication or transportation sectors.
Real Estate Property Types:

The two major types of real estate property are:
 Residential Properties
 Commercial Properties
Residential Properties:
idential properties include single family houses and multifamily properties such as apartments.
Condominiums and co-ops are also included as residential property. In general, residential properties
are properties that provide residences for individuals or families.
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Single family houses are usually individual, detached units. Multifamily housing is differentiated by
location (urban or suburban) and size of structure (high rise, low rise, or garden apartments. High rise
apartments are usually found near or close to the central business district of cities because land costs
are greater than suburban areas.
Commercial Properties:
Commercial properties are typically broken down into five major subcategories:
 office,
 retail,
 industrial,
 hotel/ motel,
 recreational and
 institutional.
Office buildings range from major multi-tenant buildings found in the central business district of most
large cities to single tenant buildings, often built with the needs of a specific tenant or tenants in mind.
Retail properties vary from large regional shopping containing over million square feet of space to
small stores with single tenants.
Industrial real estate includes property used for light or heavy manufacturing as well as associated
warehouse space. This category includes special – purpose buildings designed specifically for
industrial use that would be difficult to convert to another use, buildings used by wholesale
distributors, and combinations of warehouse/ showroom and office facilities. Older buildings that were
initially used as office space often become warehouse or light industrial space.
Hotels and motels vary considerably in size and facilities available. Motels and smaller hotels are
used primarily as a place of business travelers and families to spend a night. These properties may
have limited amenities, such as swimming pools, dining facilities, or meeting space. The property will
often be located very close to a minor highway. Hotels designed for tourists who plan to stay longer
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will usually provide dining, a swimming pool, and other amenities. They are also typically located
near other attractions that tourists visit. Hotels at destination resorts provide the greatest amount of
amenities. Hotels are of various types such as discount or budget, extended stay, mid-price, full
service, limited service, suites, luxury.
Recreational real estate includes uses such as country clubs, marinas, sports complexes, and so on.
These are very special uses, usually associated with retail space that compliments the recreational
activity. Dining facilities and hotel facilities may also be present.
Institutional real estate is a general category of property that is used by a special institution such as a
government agency, a hospital or a university. The physical structure could be similar to other
properties; government office space for example, would be similar to other offices, and could in fact
be in the same building. However, space used by institutions such as universities and hospitals is
usually designed for a specific purpose and are not easily adaptable for other uses.
INCOME STREAMS FROM COMMERCIAL PROPERTY TYPES
COMMERCIAL OFFICE
Revenues:
The primary source of revenue for a commercial office building is rent. However all things being
equal desirability or the demand for a particular office building governs the rents it can command
within a class. Desirability is primarily a function of location. Other sources of revenue for an office
building include reimbursement of operating costs. These are subject to annual adjustments. Office
building owners receive other forms of income such as building services income and even percentage
rents from other retail tenants.
Expenses:
Expenses are incurred to operate and maintain a building occupied by tenants. Major office building
costs include –
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Cleaning and custodial supplies
Repairs and maintenance costs
General and administrative expenses
Management fees and leasing commissions
Utilities
Property taxes
Insurance
Such costs are referred to as Operating expenses
RETAIL:
Revenues:
The rental income of a shopping center comes from base rent and percentage rent. One of the primary
sources of other income for a retail center is income related to the pass through of Common Area
Maintenance (CAM). CAMs are those that relate to the center as a whole and therefore relate to each
retail tenant.
Expenses:
Operating costs of a shopping center are much smaller, in terms of magnitude, than those incurred by a
commercial office building. This occurs because the tenants in a retail center pay many of the
operating costs, including utilities for which they are usually separately metered. Management fees
are generally low for a retail property since less work is involved from an administrative and
management standpoint.
MULTIFAMILY:
Revenues:
The income from apartments is generally rent. Depending on the facilities, there may be some
ancillary income from laundry, parking, vending, interest and the rental of special facilities-
recreational facilities or club houses. Apartments do not charge the common area maintenance pass
throughs that one finds in retail. There is no need for such pass throughs, since the leases are short
term and are subject to constant adjustment as leases roll over.
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Apartments differ from most forms of real estate ownership in the requirement for security deposits.
Expenses:
Expenses run into same broad categories found in any commercial property including repairs and
maintenance, taxes and utilities, insurance, management fees and administrative charges. Certain
repair and maintenance charges relate to items that are funded from a reserve and are therefore not
considered as ordinary operating expenses.
Management fees run from 2.5% to 5% depending on market conditions and the owners of the
property
INDUSTRIAL:
Revenues:
The basic revenue of an industrial project is rent. Again, product type, construction, area
demographics, amenities, location and market perception drive industrial rental revenues. Since many
industrial buildings or parks serve as distribution or warehouse facilities, building or park accessibility
to various forms of transportation may also impact the rent charged. There may be some pass through
of expenses.
Expenses:
The expenses of an industrial warehouse project fall into some major categories found in the other
commercial property types- insurance, taxes and operating costs. Operating costs of such facilities are
fairly low and the tenants often bear a great deal of the operating costs since the operations contained
within the industrial space belong to the tenant and not the landlord. The landlord incurs taxes, subject
to pass through. The landlord also incurs casualty insurance costs for the building and general liability
insurance.
HOTELS:
Income:
Hotels earn revenues from the range of services that they offer. Depending on the hotel’s services,
revenues could include catering, meetings conventions, office services, gambling or golf revenues.
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Expenses:
The expenses other than those in the cost of sales category are generally the same found with any real
estate project. Since many hotels are franchises, a franchise fee may also be paid to the franchisor.
Major Participants In The Real Estate Industry
Developers:
Development is an idea that comes to fruition when consumers – tenants or owner – occupants acquire
and use the space put in place by the development team. Land, labor, capital management and
entrepreneurship are needed to transform an idea into reality. Developers balance the needs of diverse
providers and consumers of the real estate product. The developers have to demonstrate the project’s
feasibility to the capital markets and pay interest or assign Equity positions in return for funding.
Appraisers:
Appraisers can be a part of every stage of the property development process. Appraisers are primarily
responsible for valuation of the project. They estimate the market value of the property and typically
prepare a formal document called appraisal. Appraisals may be necessary when a developer transfers
ownership, seeks financing and credit, resolves tax matters, and establishes just compensation in
condemnation in condemnation proceedings. Appraisers can also evaluate a project as input to market
studies and feasibility studies.
The total number of appraisers registered with the National Appraisal Institute, USA is approximately
100,000 as of September 2002. Some of the familiar names in the US Real Estate markets include CB
Richard Ellis, Cushman and Wakefield and Grubb and Ellis.
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Property managers:
Property mangers focus on the day to day operation of the asset. Property managers carry
responsibility for all respects of the physical space in accordance with the asset manager’s plan. The
responsibilities of a property manager include:
• Marketing and leasing

• Maintenance and repair
• Tenant relations including rent collection
• Insurance
• Accounting
• Human resource Management
• Providing timely information to the asset manager about events affecting the property.
Some of the major property managers include Trammel Crow Company and Grubb and Ellis
Company.
Brokers/ Leasing Agents:

Real Estate brokers and leasing agents are hired to act in the name of the developer in leasing and
selling space to prospective tenants or buyers. Their function, particularly in leasing large industrial
and commercial spaces is to carry out one of the most complex financial negotiations in the
development process. Leasing agents must balance all the various users’ individual needs against the
developer’s financial model.
Lenders:
Construction Lenders are usually commercial banks which are responsible for financing during
project construction and for seeing that the developer completes the project within the budget and
according to the specifications. Construction lenders faced the risk that construction costs will exceed
the construction loan that they have agreed to provide, requiring the developer to cover the difference.
Permanent lenders seek to originate safe loans generating the maximum possible return. The market
value of the completed project is very critical in that it serves as the primary collateral for the loan.
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REITs (Real Estate Investment Trusts) are an efficient way for many investors to invest in
commercial and residential real estate businesses. REITs own and in many cases operate income
producing real estate such as apartments, shopping centers, offices, hotels and warehouses. REITs
were created in 1960 to make investments in large scale income producing real estate accessible to
small investors. A company to qualify as a REIT must comply with certain provisions within the
Internal Revenue Code. There are about 300 REITs operating in the United States. In addition there
are several REITs that are not traded on a stock exchange. REITs can be classified as Equity REITs,
Mortgage REITs and Hybrid REITs. REITs are managed like other publicly managed companies.
At the end of 2002, the market capitalization of all REITs in the US reached a record high of $161.9
billion. At the end of 2002 there were 176 REITs operating in the US
Portfolio Managers:
Portfolio Managers view assets in a larger context than only one asset. For Real Estate investments,
managers are concerned about the return and risk of single property investment opportunities and how
they affect the performance of both the entire mixed-asset portfolio and the component real asset
portfolio.
Boundaries Of The Market:
The US Real Estate market extends across the fifty states which are grouped into six Census regions.
Direct Capitalization Model:

This technique is a very simple approach to the valuation of income-producing property. It is based on
the idea that any given point in time the current NOI produced by a property is related to its current
market value. Symbolically,
NOI1
R = -------
V
Where NOI1 is net operating income in the first year of the holding, as developed from the operating
statement, V is the property value and R is the capitalization rate.
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Calculation of the direct cap rate:
Example:
Comparable Sale Sale Price NOI
1. $1,400,000 $145,000
2. $1,350,000 $150,000
The capitalization rate on the first sale is $145,000 / $1,400,000 = 0.104 and on the second sale is
$150,000 / $1,350,000 = .111. The weighted average of the two cap rates is about 0.1075. Assuming
that the above two properties are similar to one another and to the subject property, this average can be
used as the direct cap rate to find out the value of the subject property.
Discounted Cash flow model: n

The present value method involves projecting the NOI for the property over a typical investment
holding period. When projecting over a holding period, the resale value of the property at the end of
the holding period must also be estimated. The discount rate must reflect a competitive investment
yield for the type of property being valued. That is, it should be a rate that the typical investor would
normally require as a minimum return over the life of the investment to be willing to purchase the
property. One guide for the discount rate would be the interest rate on a mortgage for the same
property plus a risk premium for ownership (equity).
The present value of an income stream that is increasing at a compound growth rate ‘g’ as a perpetuity
is found as follows:
V = NOI1 / (r-g)
where,
V = Present value of the income stream
NOI1 = the first year income (NOI)
g = annual growth in income
r = discount rate for present value
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Holding period: Investors typically hold assets for a period that is lesser than the entire economic life
of the asset. The property obviously must be sold at the end of the holding period subject to any leases
that extend beyond the holding period. In such a situation, the value at which the property would be
sold at the end of the holding period should be determined.
Reversionary value:
The reversionary value of the property is calculated by applying the terminal cap rate over the income
projected for the year following the holding period.
Example:
V10 = NOI11 / Terminal Cap Rate
Where,
Holding period = 10 years
V10 = Value at the end of the tenth year
NOI11 = NOI of the eleventh year
Calculation of the property value:
The reversionary value along with the income streams expected during the holding period are
discounted to find the present value of all the cash flows expected during the holding period.
In theory, the estimated value of the property under all the three approaches should be equal. But, in
practice, there is always a discrepancy between the values estimated under different approaches. So it
is left to the judgment of the appraiser to conclude the final value of the property by assigning
appropriate weights to the values calculated under the different approaches. For instance, according to
the FHA guidelines, the sales comparison approach has the most weight when determining the market
value of a home that is to be insured by an FHA loan.
Another viewpoint is that when the estimates of value under the direct cap approach and DCF
approach diverge, it is better to rely on the results of the DCF analysis for two reasons. First, DCF
models force the analyst to make explicit assumptions about the future income streams and the sales
price assumptions that finally generates the present value of the property. Second, the use of a direct
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cap rate assumes that the properties from which the cap rate was extracted were very similar to the one
being valued.
Measures Of Investment Performance Based On Cash Flow Projections:
Net Present Value (NPV):

To find the NPV, first the present value (PV) of all the estimated future cash flows. Then the initial
cash outlay invested to acquire this investment is subtracted from this present value to obtain the net
present value.
NPV = Present Value of cash inflows - Present Value of cash outflows

Thus, NPV measures the extent, if any, that the present value of cash flows to be received from the
investment exceeds the equity invested in the property. A positive NPV indicates that the value of the
investment in present value terms exceeds the equity investment. The NPV obviously depends on the
discount rate used to calculate the present value of cash inflows. This discount rate should reflect the
minimum rate of return that the investor requires to make the investment, considering the risk of the
investment. NPV is an opportunity cost concept in that the return required for the investment being
analyzed should be at least as good as the return available on comparable investments. By investing in
the properties being analyzed, the investor must forgo the return that could have been earned on
alternative investment opportunities.
Internal Rate of Return:

The investment yield or IRR is the discount rate that equates the present value of the future cash
inflows with the initial cash outflow.
3.2 EVALUATION PARAMETERS
A. Loan To Value
B. Debt Service Coverage Ratio
C. Credit Tenants
D. Lease Rollover Risk
E. Location
27
A. Loan To Value
One of the factors lenders consider before they approve a mortgage is the loan-to-value ratio
(LTV). The LTV is the loan amount expressed as a percent of either the purchase price or the
appraised value of the property. So, if you make a 20 percent cash down payment on a property you're
buying, the LTV is 80 percent. Or, if you're buying a property for $25 0,000 and the mortgage amount
is $200,000, the LTV is 80 percent (the $200,000 loan amount divided by the $250,000 purchase
price).
A mortgage with a high LTV is one where the mortgage amount is high relative to the
borrower's cash down payment or to the equity in the property. For example, if the LTV is 95 percent,
the mortgage amount is equal to 95 percent of the purchase price and the buyer's cash down payment
is equal to only 5 percent of the price. From a lender's perspective, a high LTV mortgage is more risky
than one where the LTV is low. When borrowers make a large cash down payment, or have a large
equity in a property, they are less likely to default on the mortgage. Borrowers with less equity in a
property have less to lose which puts lenders more at risk.
B. Debt Service Coverage Ratio
The debt service coverage ratio (DSCR) is the NOI divided by debt service.
DSCR = NOI
----------------
Debt Service
The DSCR is indicative of the ability of the property’s income stream to service the loan. The lender
fixes a minimum required DSCR that is expected from a property which is to be financed. The DSCR
projections over the loan period are compared against this benchmark and the risk associated with the
property’s income streams is assessed.
C. Credit Tenants
28
Credit Tenants are those tenants whose creditworthiness is high and default risk is almost nil. Credit
tenants play a major role in retail properties. They also play the role of anchor tenants who attract
more customers than an ordinary tenant. These tenants are usually rated by Credit Rating Agencies
like Standards & Poor’s and Moody’s .The concept of credit tenants plays an important role in risk –
return analysis and in valuation. Therefore the number of credit tenants in retail properties and their
contribution to the revenue helps us in determining the profitability of the proposal. The more the
credit tenants and the area occupied by them the lesser the risk.
Table 3.1 Credit Rating Table
General Credit Quality Standard & Poors Moody's

AAA AAA
AA+ AA1
AA AA2
AA- AA3
A+ A1
A A2
A- A3
INVESTMENTGRADE
BBB+ Baa1
BBB Baa2
BBB- Baa3
BB+ Baa1
BB Baa2
BB- Baa3
B+ Ba1
B Ba2
NON-INVESTMENT GRADE B- Ba3
D. Lease Rollover risk
Rollover is the probability that an existing tenant might continue to occupy the space. It is a risk to the
owners of the building and to the lenders. Incase of a rollover, the landlord has to take some efforts to
29
bring in new tenants to the building. The occupancy of the building depends on various factors like
location, market rent, anchor tenants existing in the building and the various demand & supply factors.
This is a risk. If the landlord is unable to bring in a tenant within the stipulated time, it might result in
downtime leading to vacancy in the building. This would affect the Debt Service of the borrower in
turn affecting the lender. Thus the rollover risk has to be considered before evaluating the proposals
for retail properties. The longer the rollover, lesser is the risk.
30
CHAPTER V - DATA ANALYSIS AND INTERPRETATION
PROPERTY #1
Name : Altamont Avenue

Type : Retail
Net Rentable Area : 60,802 SF
Value : $ 10,197,191
31
Table 5.1
CASH FLOWS
For the Years Ending
POTENTIAL GROSS REVENUE
Base Rental Revenue
32
CASH FLOWS
For the Years Ending
Base Rental Revenue
Absorption & Turnover Vacancy
Base Rent Abatements
Table 5.2 Terminal Value Calculation
Scheduled Base Rental Reven 33

Terminal Value Calculation
Valuation Term 10 Years
Year 11 NOI $1,248,948
Terminal Cap Rate 8.00%
Gross Sale Proceeds $15,611,850
Net Sale Proceeds $15,611,850
Table 5.3 Present Value Summary

Present Value Summary
Total PSF %
PV of Residual @ 10.0% $6,019,044 $98.99 59.0%
PV of Cash Flow @ 10.0% 4,178,147 68.72 41.0%
Total Present Value $10,197,000 $167.71 100.0%
Interpretation:
Here we have assumed a 10 year holding period irrespective of the useful life of the asset. At the end of the 10th year, the
property is assumed to be sold. So, the 11th year NOI is capitalized to get the Net Sale Proceeds. The capitalized value is
then discounted to get the present value. This value is added to the present value of the 10 year cash flows to get the
value of the property.
Table 5.4 NPV Sensitivity Table
34
Discount Rate
9.50% 9.75% 10.00% 10.25% 10.50%
7.50% $11,009 $10,801 $10,598 $10,400 $10,206
(181.06) (177.65) (174.31) (171.05) (167.86)
Terminal Cap Rate
7.75% $10,792 $10,590 $10,391 $10,198 $10,009
(177.50) (174.16) (170.90) (167.72) (164.61)
8.00% $10,589 $10,391 $10,197 $10,008 $9,823
(174.16) (170.90) (167.71) (164.60) (161.56)
8.25% $10,398 $10,204 $10,015 $9,830 $9,649
(171.02) (167.83) (164.71) (161.67) (158.69)
8.50% $10,219 $10,029 $9,843 $9,662 $9,485
(168.06) (164.94) (161.89) (158.91) (155.99)
Interpretation:
The above table shows the resulting Net Present Value of the property in response to the fluctuations in Cap rate and
Discount rate due to changes in market conditions.
Table 5.5 Sensitivity Of DSCR And LTV To Changes In Interest Rates And Cap Rates
Debt Service Coverage Matrix Loan To Value Matrix

Interest Rate Debt Service DSCR Direct Cap. Rate Value LTV
5.75% $566,196 1.20 7.00% $9,746,000 82.1%
6.25% $593,702 1.15 7.50% $9,096,000 88.0%
6.75% $621,820 1.10 8.00% $8,528,000 93.8%
7.25% $650,526 1.05 8.50% $8,026,000 99.7%
7.75% $679,796 1.00 9.00% $7,580,000 105.5%
The above tables show the corresponding changes in Debt Service Coverage Ratio to the changing Interest rates and the
changes in the Loan To Value corresponding changes in Cap Rates. Clients generally require this table for their decision
making.
35
Table 5.6 Lease Expiration
For the Years Ending Jun-2006Jun-2007Jun-2008Jun-2009Jun-2010Jun-2011Jun-2012Jun-2013Jun-2014Jun-2015

TENANT SUITE
MA DISON LINEN 401 480
HEBRON Y ESHIV A 406 536
MERCHA NT RENA ISSA NCE 503 712
BUREKHOV ICH TRA V EL 504 1,575
INNO FUND CORP. 505 1,100
SA LOMON ENGINEERING 803 1,125
GLA MOUR (USA ), INC. 407 776
SA MUEL SA NG HY ON 502 2,081
SENECA TRA DING, INC. 610 752
PRIMA RY RESOURCE 901 2,000
KA M CONSULTING SERV ICE 410 650
WELLINK PRODUCTS 603 1,210
BEST STY LES, INC. 0604A 2,145
URBA N OUTDOOR 701 400
MA RKETING GRA PHICS, INC 707 636
C & M INTERNA TIONA L 708 600
J & J CORP. 201 1,215
BEST SILV ER, INC. 0205A 4,130
TIME CENTER, INC. STOR3 315
J & J CORP. STOR5 682
KI KI JEWELRY CORP 605 1,000
WENCY LLC 408 1,460
HERITA GE, INC. 810 1,275
HOWA RD NOWES 405 640
K. Y OUNG A SSESSA RIES 508 1,800
A FRICA N A NGELS STOR4 445
STA TE TO STA TE RISK 802 553
CIRCLEX CORPORA TION 601 1,782
BEST STY LES, INC. 0610A 460
36
EMPORIO PLUS, INC. 0703A 365
SECURE TRA DING EST. 801 410
V ERMA NI PERFUMES STOR7
For the Years Ending Jun-2006Jun-2007Jun-2008Jun-2009Jun-2010Jun-2011Jun-2012Jun-2013Jun-2014Jun-2015
TENANT SUITE
MA DISON LINEN 401 480
HEBRON Y ESHIV A 406 536
MERCHA NT RENA ISSA NCE 503 712
BUREKHOV ICH TRA V EL 504 1,575
INNO FUND CORP. 505 1,100
SA LOMON ENGINEERING 803 1,125
GLA MOUR (USA ), INC. 407 776
SA MUEL SA NG HY ON 502 2,081
SENECA TRA DING, INC. 610 752
PRIMA RY RESOURCE 901 2,000
KA M CONSULTING SERV ICE 410 650
WELLINK PRODUCTS 603 1,210
BEST STY LES, INC. 0604A 2,145
URBA N OUTDOOR 701 400
MA RKETING GRA PHICS, INC 707 636
C & M INTERNA TIONA L 708 600
J & J CORP. 201 1,215
BEST SILV ER, INC. 0205A 4,130
TIME CENTER, INC. STOR3 315
J & J CORP. STOR5 682
KI KI JEWELRY CORP 605 1,000
WENCY LLC 408 1,460
HERITA GE, INC. 810 1,275
HOWA RD NOWES 405 640
K. Y OUNG A SSESSA RIES 508 1,800
A FRICA N A NGELS STOR4 445
STA TE TO STA TE RISK 802 553
CIRCLEX CORPORA TION 601 1,782
BEST STY LES, INC. 0610A 460
EMPORIO PLUS, INC. 0703A 365
SECURE TRA DING EST. 801 410
V ERMA NI PERFUMES STOR7
BEST STY LES INC. 400 1,800
A A & TC, INC. 706 1,400
HIND FA SHION, INC. 800 1,037
EA RTH MECHA NICA L CORP 806 1,044
UNICOM CRA FTS, INC. 809 1,063
GENESIS INTERNA TIONA L STOR2 689
LUCKY SILV ER INC. 404 1,000
LUCKY GEM, INC. 300 630
LUCKY GEM, INC. 301 1,295
A BLE JEWELRY CREA TION 305 530
LUCKY GEM, INC. 308 5,107
TOP SA LE TRA DE USA 807 1,700
HA N SOL USA GROUP, INC. 704 600
BA RA TO TRA DING STOR6 1,000
SILV ER GA LORE, INC. STOR8 881
GURU IMPORTS, INC. 202 625
DECENT TRA DING, INC. STOR1 2,000
TOTAL 30,337 23,842 4,506 0 0 0 0 0 0 0
% of Total SF Expir ing 49.89% 39.21% 7.41% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Cu lm ulative Expir ation 49.89% 89.1% 96.5% 96.5% 96.5% 96.5% 96.5% 96.5% 96.5% 96.5%
37
Fig 5.1 Lease Expiration Chart
Year % of NRA Expiring

% of NRAAnnually
Expiring Cumulative
Jun-2006 2006 2006 49.9% 49.9%
Jun-2007 2007 2007 39.2% 89.1%
Jun-2008 2008 2008 7.4% 96.5%
Jun-2009 2009 2009 0.0% 96.5%
Jun-2010 2010 2010 0.0% 96.5%
Jun-2011 2011 2011 0.0% 96.5%
Jun-2012 2012 2012 0.0% 96.5%
Jun-2013 2013 2013 0.0% 96.5%
Jun-2014 2014 2014 0.0% 96.5%
Jun-2015 2015 2015 0.0% 96.5%
Interpretation
The above chart depicts the percentage of Net Rentable Area completing the first lease
rollover. Table 6 shows the total square foot of first rollover of each tenant.
The information was obtained from the lease agreements. Whenever there is a lease
rollover, there is a probability of either the tenant renewing the lease or vacating. This risk is
shown above. Here 96.5 % gets rolled over within 3 years, hence the risk is high.
38
Table 5.7 Rent Roll
Tenant Suite No. SF % of Total Rent/SF Annual % of Annual
SF Income Incom e
Credit Tenants
J & J CORP. STOR5 682 1.1% $138.56 $94,501 4.5%
J & J CORP. 0201 1,215 2.0% $13.00 $15,790 0.7%
Credit Tenants Total/Average 1,897 3.1% $58.14 $110,291 5.2%
Non-Credit Tenants
DECENT TRADING, INC. STOR1 1,487 2.4% $196.98 $292,903 13.9%
GENESIS INTERNATIONAL STOR2 1,000 1.6% 156.60 156,600 7.4%
TIME CENTER, INC. STOR3 315 0.5% 197.78 62,300 2.9%
AFRICAN ANGELS STOR4 445 0.7% 321.35 143,002 6.8%
BARATO TRADING STOR6 881 1.4% 194.10 170,998 8.1%
VERMANI PERFUMES STOR7 1,800 3.0% 53.17 95,706 4.5%
SILVER GALORE, INC. STOR8 625 1.0% 115.20 72,000 3.4%
GURU IMPORTS, INC. 0202 2,000 3.3% 24.90 49,800 2.4%
BEST SILVER, INC. 0205A 4,130 6.8% 11.14 45,998 2.2%
LUCKY GEM, INC. 0300 1,295 2.1% 24.68 31,961 1.5%
LUCKY GEM, INC. 0301 530 0.9% 24.68 13,080 0.6%
ABLE JEWELRY CREATION 0305 5,107 8.4% 24.08 122,977 5.8%
LUCKY GEM, INC. 0308 1,700 2.8% 24.68 41,956 2.0%
BEST STYLES INC. 0400 1,400 2.3% 24.86 34,804 1.6%
MADISON LINEN 0401 480 0.8% 12.71 6,100 0.3%
GLAMOUR LINE INC. 0402 500 0.8% 25.20 12,600 0.6%
DYNAMIC AIRCONDITIONING 0403 400 0.7% 29.63 11,850 0.6%
LUCKY SILVER INC. 0404 630 1.0% 28.57 17,999 0.9%
HOWARD NOWES 0405 640 1.1% 23.46 15,013 0.7%
HEBRON YESHIVA 0406 536 0.9% 11.63 6,231 0.3%
GLAMOUR (USA), INC. 0407 776 1.3% 12.23 9,490 0.4%
WENCY LLC 0408 1,460 2.4% 18.08 26,397 1.2%
KAM CONSULTING SERVICE 0410 650 1.1% 11.51 7,479 0.4%
SAMUEL SANG HYON 0502 2,081 3.4% 12.58 26,186 1.2%
MERCHANT RENAISSANCE 0503 712 1.2% 12.80 9,114 0.4%
BUREKHOVICH TRAVEL 0504 1,575 2.6% 12.42 19,555 0.9%
INNO FUND CORP. 0505 1,100 1.8% 13.02 14,317 0.7%
K. YOUNG ASSESSARIES 0508 1,800 3.0% 19.86 35,756 1.7%
CIRCLEX CORPORATION 0601 1,782 2.9% 25.59 45,595 2.2%
WELLINK PRODUCTS 0603 1,210 2.0% 14.91 18,045 0.9%
BEST STYLES, INC. 0604A 2,145 3.5% 11.67 25,032 1.2%
KI KI JEWELRY CORP 0605 1,000 1.6% 13.65 13,650 0.6%
SENECA TRADING, INC. 0610 752 1.2% 12.65 9,510 0.5%
BEST STYLES, INC. 0610A 460 0.8% 27.18 12,502 0.6%
39
P.O.M. PLANNING SERVICE 0700 1,042 1.7% 19.58 20,402 1.0%
URBAN OUTDOOR 0701 400 0.7% 13.08 5,233 0.2%
METRO OFFICE FURNITURE 0702 630 1.0% 20.95 13,199 0.6%
EMPORIO PLUS, INC. 0703A 365 0.6% 29.59 10,800 0.5%
HAN SOL USA GROUP, INC. 0704 1,000 1.6% 28.60 28,600 1.4%
AA & TC, INC. 0706 1,037 1.7% 26.04 27,003 1.3%
MARKETING GRAPHICS, INC 0707 636 1.0% 12.92 8,215 0.4%
C & M INTERNATIONAL 0708 600 1.0% 12.92 7,750 0.4%
HIND FASHION, INC. 0800 1,044 1.7% 23.18 24,202 1.1%
SECURE TRADING EST. 0801 410 0.7% 26.95 11,049 0.5%
1220 BROADWAY BUSINESS 0801A 1,032 1.7% 27.91 28,803 1.4%
STATE TO STATE RISK 0802 553 0.9% 25.50 14,102 0.7%
SALOMON ENGINEERING 0803 1,125 1.9% 13.01 14,637 0.7%
EARTH MECHANICAL CORP 0806 1,063 1.7% 29.54 31,399 1.5%
TOP SALE TRADE USA 0807 600 1.0% 23.00 13,800 0.7%
UNICOM CRAFTS, INC. 0809 689 1.1% 26.27 18,098 0.9%
HERITAGE, INC. 0810 1,275 2.1% 22.74 28,996 1.4%
PRIMARY RESOURCE 0901 2,000 3.3% 9.93 19,867 0.9%
Non-Credit Total/Average 58,905 96.9% $34.00 $2,002,661 94.8%
Total/Average 60,802 100.0% $34.75 $2,112,952 100.0%
Interpretation:
The above table shows whether the tenants are credit tenants or not. This information was
searched from websites such as Standard & Poors, Moodys and Fitch to find out the credit
rating of each tenant. Then they are rated as credit and non-credit based on the credit rating
table. A credit tenant generally is an anchor tenant who attracts customers to the property.
His lease lasts long and he is a credit worthy tenant. The area occupied by the tenant and
the income generated by them is also shown in the table.
40
PROPERTY #2
Name : Orchards
Type : Retail
Value : $ 10,195,446
41
Table 5.8 Cash Flows
For the Years Ending Jun-2006 Jun-2007 Jun-2008 Jun-2009 Jun-2010 Jun-2011 Jun-2012 Jun-2013 Jun-2014 Jun-2015 Jun-2016

Base Rental Revenue $747,767 $780,567 $804,824 $828,481 $833,249 $857,447 $903,593 $919,405 $958,492 $1,003,625 $1,060,211
Absorption & Turnover Vacancy 0 0 (3,278) 0 0 (13,842) 0 (3,800) (8,313) (5,258) (25,792)
Scheduled Base Rental Revenue 747,767 780,567 801,546 828,481 833,249 843,605 903,593 915,605 950,179 998,367 1,034,419
Expense Reimbursement Revenue 356,876 366,479 374,715 386,121 396,235 400,557 418,137 427,917 438,787 452,442 458,089
TOTAL POTENTIAL GROSS REVENUE $1,104,643 $1,147,046 $1,176,261 $1,214,602 $1,229,484 $1,244,162 $1,321,730 $1,343,522 $1,388,966 $1,450,809 $1,492,508
General Vacancy (33,139) (34,411) (32,108) (36,438) (36,885) (23,898) (39,652) (36,620) (33,605) (38,424) (19,757)
Collection Loss (22,093) (22,941) (23,525) (24,292) (24,590) (24,883) (26,435) (26,870) (27,779) (29,016) (29,850)
EFFECTIVE GROSS REVENUE $1,049,411 $1,089,694 $1,120,628 $1,153,872 $1,168,009 $1,195,381 $1,255,643 $1,280,032 $1,327,582 $1,383,369 $1,442,901
OPERATING EXPENSES
Grease Trap Pumping $1,250 $1,288 $1,326 $1,366 $1,407 $1,449 $1,493 $1,537 $1,583 $1,631 $1,680
Alarm Monitoring 300 309 318 328 338 348 358 369 380 391 403
Elevator 1,200 1,236 1,273 1,311 1,351 1,391 1,433 1,476 1,520 1,566 1,613
Management Fee 31,482 32,691 33,619 34,616 35,040 35,861 37,669 38,401 39,827 41,501 43,287
Liability Expense 27,000 27,810 28,644 29,504 30,389 31,300 32,239 33,207 34,203 35,229 36,286
Administration Charges 1,000 1,030 1,061 1,093 1,126 1,159 1,194 1,230 1,267 1,305 1,344
Other CAM 115,294 118,753 122,315 125,985 129,764 133,657 137,667 141,797 146,051 150,433 154,945
Real Estate Taxes 102,000 106,080 110,323 114,736 119,326 124,099 129,063 134,225 139,594 145,178 150,985
TOTAL OPERATING EXPENSES $279,526 $289,197 $298,879 $308,939 $318,741 $329,264 $341,116 $352,242 $364,425 $377,234 $390,543
NET OPERATING INCOME $769,885 $800,497 $821,749 $844,933 $849,268 $866,117 $914,527 $927,790 $963,157 $1,006,135 $1,052,358
LEASING & CAPITAL COSTS

Tenant Improvements $0 $0 $12,293 $0 $0 $26,373 $26,299 $14,251 $4,988 $19,718 $41,158
Leasing Commissions 0 0 9,835 0 0 21,099 21,039 11,401 24,940 15,775 79,829
Capital Reserve 5,927 6,105 6,288 6,477 6,671 6,871 7,077 7,290 7,508 7,734 7,966
TOTAL LEASING & CAPITAL COSTS $5,927 $6,105 $28,416 $6,477 $6,671 $54,343 $54,415 $32,942 $37,436 $43,227 $128,953
CASH FLOW BEFORE DEBT SERVICE $763,958 $794,392 $793,333 $838,456 $842,597 $811,774 $860,112 $894,848 $925,721 $962,908 $923,405
& TAXES
42
Total PSF %
PV of Residual @ 10.0% $5,071,620 $128.35 49.7%
PV of Cash Flow @ 10.0% 5,123,826 129.67 50.3%

Year 11 NOI $1,052,358
43
Present Value Analysis - Total/(PSF) (in '000s)

Discount Rate
9.50% 9.75% 10.00% 10.25% 10.50%
7.50% $10,902 $10,716 $10,534 $10,356 $10,181
(275.90) (271.20) (266.59) (262.08) (257.66)
Terminal Cap Rate
7.75% $10,719 $10,537 $10,359 $10,185 $10,015

(271.27) (266.66) (262.16) (257.76) (253.45)
8.00% $10,548 $10,370 $10,195 $10,025 $9,858
(266.94) (262.44) (258.02) (253.71) (249.48)
8.25% $10,387 $10,213 $10,042 $9,875 $9,711
(262.87) (258.47) (254.14) (249.91) (245.76)
8.50% $10,236 $10,065 $9,897 $9,733 $9,573
(259.05) (254.72) (250.47) (246.32) (242.27)
Table 5.12 Sensitivity Of DSCR And LTV To Changes In Interest Rates And Cap Rate
5.75% $566,196 1.36 7.00% $10,998,000 63.6%
6.25% $593,702 1.30 7.50% $10,265,000 68.2%
6.75% $621,820 1.24 8.00% $9,624,000 72.7%
7.25% $650,526 1.18 8.50% $9,057,000 77.3%
7.75% $679,796 1.13 9.00% $8,554,000 81.8%
Interpretation:
The Debt Service Coverage Ratios of this property are acceptable and the Loan To Value Values are in good range. The
risk is low in this property for the lender.
44
For the Years Ending Jun-2006 Jun-2007 Jun-2008 Jun-2009 Jun-2010 Jun-2011 Jun-2012 Jun-2013 Jun-2014 Jun-2015
TENANT
Procare 1,854
OBGYN Associates 3,640
Dr. Messo 3,524

C & L Bagels L.L.C. 1,525
Little Expressions 1,494
Gingers Salon 3,150
J & K Interiors 3,150
Estate Jewelry 605
Xact Solutions 2,965
American Realty 1,390
Hip Yoga, L.L.C. 1,575
Monmouth Health 2,418
Art & San L.L.C.
TOTAL 1,854 0 7,164 9,319 4,960 1,575 0 0 0 2,418
% of Total SF Expiring 4.69% 0.0% 18.1% 23.6% 12.6% 4.0% 0.0% 0.0% 0.0% 6.1%
Culmulative Expiration 4.69% 4.7% 22.8% 46.4% 59.0% 62.9% 62.9% 62.9% 62.9% 69.1%
Speculative leases are not included in the Lease Expiration Schedule.
45
Fig 5.2 Lease Expiration Chart
Lease Expiration Analysis
100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0% 18.1% 23.6%
20.0% 12.6%
4.7% 4.0% 6.1%
10.0% 0.0% 0.0% 0.0%
0.0%
0.0%
2006 20 07 2008 2009 2010 2011 2012 2013 2014 2015
% of NRA Expirin g Annually % of NRA Expiring Cu mulative

% of NRAAnnually
Expiring Cumulative
Jun-2006 2006 2006 4.7% 4.7%
Jun-2007 2007 2007 0.0% 4.7%
Jun-2008 2008 2008 18.1% 22.8%
Jun-2009 2009 2009 23.6% 46.4%
Jun-2010 2010 2010 12.6% 59.0%
Jun-2011 2011 2011 4.0% 62.9%
Jun-2012 2012 2012 0.0% 62.9%
Jun-2013 2013 2013 0.0% 62.9%
Jun-2014 2014 2014 0.0% 62.9%
Jun-2015 2015 2015 6.1% 69.1%
Apr-2016 42461 2016 0.0% 69.1%
Interpretation
The chart shows that 69.1 % of the net rentable area is at risk of vacation loss after the first
lease is completed for all the tenants.
46
Table 5.14 Rent Roll
For the Years Ending Suite No. SF % of Total Rent/SF Annual % of Annual
SF Income Income
Tenants
C & L Bagels L.L.C. A 1,525 3.9% $22.23 $33,897 4.5%
Art & San L.L.C. B,C,D 4,725 12.0% 23.67 111,857 15.0%
Little Expressions E 1,494 3.8% 22.16 33,100 4.4%
Orchards Cleaners F 1,557 3.9% 20.89 32,518 4.3%
Gingers Salon G, H 3,150 8.0% 22.24 70,046 9.4%
Perkins J, K 3,404 8.6% 17.74 60,401 8.1%
R.G. Holding L 1,288 3.3% 3.75 4,830 0.6%
Blooming Things M 1,250 3.2% 21.65 27,067 3.6%
Estate Jewelry M (Fro 605 1.5% 21.44 12,972 1.7%
J & K Interiors N, P 3,150 8.0% 21.51 67,757 9.1%
Xact Solutions Q, R 2,965 7.5% 20.19 59,849 8.0%
Hip Yoga, L.L.C. S 1,575 4.0% 21.01 33,091 4.4%
American Realty T 1,390 3.5% 20.96 29,130 3.9%
Monmouth Health A&D 2,418 6.1% 16.00 38,688 5.2%
Dr. Messo B/C1 3,524 8.9% 14.19 50,017 6.7%
Procare C2 1,854 4.7% 15.14 28,068 3.8%
OBGYN Associates C3 3,640 9.2% 14.97 54,479 7.3%
Total/Average 39,514 100.0% $319.73 $747,767 100.0%
Interpretation:
This property does not have any credit tenants. So the property does not have any major
anchor tenant who can drive in customers. This is a disadvantage for the property.
47
PROPERTY #3
Name : Sunrise
Type : Retail
Value : $ 7,369,616
48
For the Years Ending Jun-2006 Jun-2007 Jun-2008 Jun-2009 Jun-2010 Jun-2011 Jun-2012 Jun-2013 Jun-2014 Jun-2015 Jun-2016
Base Rental Revenue $690,685 $767,267 $791,944 $851,758 $934,986 $980,295 $1,006,732 $1,032,265 $1,059,673 $1,090,746 $1,117,164
Absorption & Turnover Vacancy (7,578) (8,226) (2,245) (27,021) (17,483) (69,932) (15,406) (3,274) (34,005) (20,268) (81,071)
Scheduled Base Rental Revenue $683,107 $759,041 $789,699 $824,737 $917,503 $910,363 $991,326 $1,028,991 $1,025,668 $1,070,478 $1,036,093
Base Rental Step Revenue 90,857 67,874 60,213 45,570 273 0 0 0 0 0 0
Miscellaneous Rental Revenue 109,671 13,671 4,071 4,071 678 0 0 0 0 0 0
Expense Reimbursement Revenue 41,823 39,703 42,620 40,863 20,949 22,050 24,421 29,495 30,817 26,158 25,852
TOTAL POTENTIAL GROSS REVENUE $925,458 $880,289 $896,603 $915,241 $939,403 $932,413 $1,015,747 $1,058,486 $1,056,485 $1,096,636 $1,061,945
Collection Loss (9,255) (8,803) (8,966) (9,152) (9,394) (9,324) (10,157) (10,585) (10,565) (10,966) (10,619)
EFFECTIVE GROSS REVENUE $916,203 $871,486 $887,637 $906,089 $930,009 $923,089 $1,005,590 $1,047,901 $1,045,920 $1,085,670 $1,051,326
OPERATING EXPENSES
Insurance $17,453 $17,977 $18,516 $19,071 $19,644 $20,233 $20,840 $21,465 $22,109 $22,772 $23,455
Contract Services 4,505 4,640 4,780 4,923 5,071 5,222 5,379 5,541 5,707 5,878 6,055
Repairs & Maintenance 10,352 10,663 10,982 11,312 11,651 12,001 12,361 12,732 13,114 13,507 13,912
Cleaning 10,307 10,616 10,935 11,263 11,601 11,949 12,307 12,676 13,057 13,448 13,852
Utilities 71,544 73,690 75,901 78,178 80,523 82,939 85,427 87,990 90,630 93,349 96,149
Management Fees 27,486 26,145 26,629 27,183 27,900 27,693 30,168 31,437 31,378 32,570 31,540
Salaries & Benefits 53,170 54,765 56,408 58,100 59,843 61,639 63,488 65,392 67,354 69,375 71,456
Office Costs 10,846 11,171 11,506 11,851 12,208 12,572 12,952 13,338 13,739 14,153 14,577
Real Estate Taxes 32,987 33,647 34,320 35,006 35,706 36,420 37,149 37,892 38,650 39,423 40,211
TOTAL OPERATING EXPENSES $238,650 $243,314 $249,977 $256,887 $264,147 $270,668 $280,071 $288,463 $295,738 $304,475 $311,207
NET OPERATING INCOME $677,553 $628,172 $637,660 $649,202 $665,862 $652,421 $725,519 $759,438 $750,182 $781,195 $740,119

Tenant Improvements $40,000 $12,691 $0 $23,221 $13,841 $55,363 $7,163 $7,776 $26,921 $16,046 $64,181
Leasing Commissions 41,284 11,064 0 20,246 12,067 48,266 6,245 6,779 23,470 13,988 55,953
Capital Reserves 4,512 4,648 4,787 4,931 5,079 5,231 5,388 5,549 5,716 5,887 6,064
TOTAL LEASING & CAPITAL COSTS $85,796 $28,403 $4,787 $48,398 $30,987 $108,860 $18,796 $20,104 $56,107 $35,921 $126,198
CASH FLOW BEFORE DEBT SERVICE $591,757 $599,769 $632,873 $600,804 $634,875 $543,561 $706,723 $739,334 $694,075 $745,274 $613,921
& TAXES
49
Total PSF %
PV of Residual @ 10.0% $3,566,834 $79.05 48.3%
PV of Cash Flow @ 10.0% 3,819,100 84.64 51.7%

Year 11 NOI $740,119
50
Discount Rate
9.50% 9.75% 10.00% 10.25% 10.50%
6.50% $7,981 $7,846 $7,714 $7,586 $7,460
(176.88) (173.88) (170.96) (168.12) (165.33)
Terminal Cap Rate

6.75% $7,852 $7,720 $7,592 $7,466 $7,343
(174.02) (171.09) (168.25) (165.46) (162.74)
7.00% $7,732 $7,603 $7,370 $7,353 $7,233
(171.36) (168.50) (163.33) (162.96) (160.30)
7.25% $7,619 $7,492 $7,369 $7,248 $7,129
(168.85) (166.04) (163.31) (160.63) (157.99)
7.50% $7,512 $7,388 $7,267 $7,148 $7,032
(166.48) (163.73) (161.05) (158.41) (155.84)
5.75% $566,196 1.03 7.00% $8,338,000 89.9%
6.25% $593,702 0.98 7.50% $7,782,000 96.4%
6.75% $621,820 0.94 8.00% $7,296,000 102.8%
7.25% $650,526 0.90 8.50% $6,867,000 109.2%
7.75% $679,796 0.86 9.00% $6,485,000 115.7%
Interpretation:
The Debt Service Coverage Ratio is lower than 1, which means that the income of the borrower may not be sufficient
enough to service his debt. The Loan To Value is also on the higher side. Typically LTVs greater than 100% call for huge
risks.
51
TENANT SUITE
New Paradigm Investment 210 1,263
Dr. Lang, MD 230 1,105
Mercy Healthcare 300 7,921
Dr. John Von Brecht 260 1,331
Dr. Gloria S. Simard 220 1,058
Dr. Lang, MD 230 1,105
Sierra Foothills Thorac 250 2,311
CHW Medical 100 17,030
Mercy Blood Draw Lab 270 460
Dr. Shaari, DDS 290 2,129
Dr. Daisuke Bannai 240 1,350
Dr. Carol F. Milazzo 280 1,504
Sierra Counseling 310B 7,200
TOTAL 2,368 9,252 4,474 17,030 2,589 10,054 0 0 0 0
52
Fig.53 Lease Expiration Chart

100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
37.7%
40.0%
30.0% 22.3%
20.0% 20.5% 9.9%
10.0% 5.2% 5.7%

0.0% 0.0% 0.0% 0.0%
0.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
% of NRA Expiring Annually % of NRA Expiring Cumulative

% of NRAAnnually
Expiring Cumulative
Jun-2006 2006 2006 5.2% 5.2%
Jun-2007 2007 2007 20.5% 25.8%
Jun-2008 2008 2008 9.9% 35.7%
Jun-2009 2009 2009 37.7% 73.4%
Jun-2010 2010 2010 5.7% 79.1%
Jun-2011 2011 2011 22.3% 101.4%
Jun-2012 2012 2012 0.0% 101.4%
Jun-2013 2013 2013 0.0% 101.4%
Jun-2014 2014 2014 0.0% 101.4%
Jun-2015 2015 2015 0.0% 101.4%
Interpretation:
The probability of the property becoming 100% vacant arises in the 6th year itself. The
rollover risk is high.
53

SF Income Income
Non-Credit Tenants
CHW Medical 0100 17,030 37.7% $11.09 $188,873 27.6%
New Paradigm Investment 0210 1,263 2.8% 15.57 19,665 2.9%
Dr. Gloria S. Simard 0220 1,058 2.3% 22.25 23,540 3.4%
Dr. Lang, MD 0230 1,105 2.4% 21.00 23,205 3.4%
Dr. Daisuke Bannai 0240 1,350 3.0% 18.80 25,380 3.7%
Sierra Foothills Thorac 0250 2,311 5.1% 21.00 48,528 7.1%
Dr. John Von Brecht 0260 1,331 2.9% 19.93 26,526 3.9%
Mercy Blood Draw Lab 0270 460 1.0% 23.88 10,987 1.6%
Dr. Shaari, DDS 0290 2,129 4.7% 23.99 51,065 7.5%
Mercy Healthcare 0300 7,921 17.6% 11.43 90,525 13.3%
Nextel Communications 0350 460 1.0% 37.80 17,389 2.5%
Dr.Carol F. Milazza 0280 1,504 3.3% 18.50 27,824 4.1%
Sierra Counselling 310 B 7,200 16.0% 18.00 129,600 19.0%
Non-Credit Total/Average 45,122 100.0% $245.24 $683,107 100.0%
Total/Average 45,122 100.0% $15.14 $683,107 100.0%
Interpretation:
This property does not have any credit tenants. So the property does not have any major
anchor tenant who can drive in customers. This is a disadvantage for the property.
54
PROPERTY #4
Name : Georges Avenue

Type : Retail
Value : $ 9,788,461
55
Base Rental Revenue $765,438 $797,918 $818,131 $886,069 $906,913 $940,397 $986,265 $1,018,045 $1,059,939 $1,143,260
Absorption & Turnover Vacancy 0 (14,163) (9,061) 0 (2,814) (23,623) (13,433) (19,729) (16,086) (6,864)
Scheduled Base Rental Revenue $765,438 $783,755 $809,070 $886,069 $904,099 $916,774 $972,832 $998,316 $1,043,853 $1,136,396
Expense Reimbursement Revenue 352,395 370,896 387,329 404,997 419,203 423,576 401,239 417,775 442,850 470,033
TOTAL POTENTIAL GROSS REVENUE $1,117,833 $1,154,651 $1,196,399 $1,291,066 $1,323,302 $1,340,350 $1,374,071 $1,416,091 $1,486,703 $1,606,429
General Vacancy (33,535) (20,901) (27,103) (38,732) (36,969) (17,296) (28,192) (23,346) (28,998) (41,535)
Collection Loss (22,357) (23,093) (23,928) (25,821) (26,466) (26,807) (27,481) (28,322) (29,734) (32,129)
EFFECTIVE GROSS REVENUE $1,061,941 $1,110,657 $1,145,368 $1,226,513 $1,259,867 $1,296,247 $1,318,398 $1,364,423 $1,427,971 $1,532,765
OPERATING EXPENSES
Real Estate Taxes $149,876 $155,871 $162,106 $168,590 $175,334 $182,347 $189,641 $197,227 $205,116 $213,320
Water/Sew er 9,296 9,575 9,862 10,158 10,463 10,777 11,100 11,433 11,776 12,129
Insurance 32,016 32,976 33,966 34,985 36,034 37,115 38,229 39,376 40,557 41,774
Utilities 13,892 14,309 14,738 15,180 15,636 16,105 16,588 17,085 17,598 18,126
Landscaping 34,531 35,567 36,634 37,733 38,865 40,031 41,232 42,469 43,743 45,055
Trash Removal 8,965 9,234 9,511 9,796 10,090 10,393 10,705 11,026 11,357 11,697
Snow Removal 20,440 21,053 21,685 22,335 23,005 23,696 24,406 25,139 25,893 26,670
Payroll/Taxes 12,000 12,360 12,731 13,113 13,506 13,911 14,329 14,758 15,201 15,657
Repairs & Maintenance 53,097 55,533 57,268 61,326 62,993 64,812 65,920 68,221 71,399 76,638
Management Fee 31,858 33,320 34,361 36,795 37,796 38,887 39,552 40,933 42,839 45,983
TOTAL OPERATING EXPENSES $365,971 $379,798 $392,862 $410,011 $423,722 $438,074 $451,702 $467,667 $485,479 $507,049
NET OPERATING INCOME $695,970 $730,859 $752,506 $816,502 $836,145 $858,173 $866,696 $896,756 $942,492 $1,025,716

Tenant Improvements $15,000 $6,953 $7,028 $0 $1,688 $4,347 $16,494 $11,838 $7,917 $5,904
Leasing Commissions 18,750 34,763 35,143 0 8,441 21,736 90,905 59,187 39,587 29,521
Reserves 6,641 6,840 7,045 7,256 7,474 7,698 7,929 8,167 8,412 8,665
CASH FLOW BEFORE DEBT SERVICE $655,579 $682,303 $703,290 $809,246 $818,542 $824,392 $751,368 $817,564 $886,576 $981,626
& TAXES
56
Total PSF %
PV of Residual @ 10.0% $5,052,453 $114.13 51.6%
PV of Cash Flow @ 10.0% 4,736,008 106.98 48.4%

Year 11 NOI $1,048,381
57

Discount Rate
9.50% 9.75% 10.00% 10.25% 10.50%
7.50% $11,354 $11,152 $10,954 $10,761 $10,572
(256.47) (251.90) (247.43) (243.07) (238.80)
Terminal Cap Rate

7.75% $11,113 $10,916 $10,724 $10,536 $10,352
(251.02) (246.57) (242.24) (237.99) (233.83)
8.00% $10,889 $10,698 $9,788 $10,327 $10,148
(245.96) (241.65) (221.10) (233.27) (229.22)
8.25% $10,681 $10,494 $10,311 $10,132 $9,958
(241.26) (237.04) (232.91) (228.86) (224.93)
8.50% $10,486 $10,304 $10,125 $9,951 $9,780
(236.86) (232.75) (228.71) (224.77) (220.91)
5.75% $566,196 1.23 7.00% $9,942,000 80.5%
6.25% $593,702 1.17 7.50% $9,280,000 86.2%
6.75% $621,820 1.12 8.00% $8,700,000 92.0%
7.25% $650,526 1.07 8.50% $8,188,000 97.7%
7.75% $679,796 1.02 9.00% $7,733,000 103.5%
Interpretation:
The Debt Service Coverage Ratios of the property are closer to the ideal value. The Loan To Value is slightly higher. This
would have been acceptable if there were credit tenants in the property, which would have reduced the risk of getting
back the loan payments.
58
TENANT SUITE
Dr. Mark Zeintek 1082 1,800
Classic Comics 1006 1,200
Two Girls Inc. 1000 1,200
Yuno Corp. 1090 1,200
Raymond & Susan 1050 5,000
JJ Pizza 1008 1,200
UPS Store (Jin Kim) 1092 1,200
Dr. Eugene & Tendler 1086 1,800
Saibaba Cellular 1002 1,100
Ming Feng 998 1,095
Beneficial Finance 1004 1,325
Sip & Dip 1096 1,200
Community Distribution 1064 13,900
Bank of America 1034 5,651
Krauzer's Food Store 1100 2,400
TOTAL 1,800 9,800 4,100 2,420 15,100 5,651 0 2,400 0 0
59
60
Fig.5.4 Lease Expiration Chart

100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0% 34.1%
30.0%
22.1% 9.3%
20.0% 12.8%
10.0% 5.5% 5.4%
4.1%
0.0% 0.0% 0.0%
0.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

% of NRAAnnually
Expiring Cumulative
Jun-2006 2005 2005 4.1% 4.1%
Jun-2007 2006 2006 22.1% 26.2%
Jun-2008 2007 2007 9.3% 35.5%
Jun-2009 2008 2008 5.5% 40.9%
Jun-2010 2009 2009 34.1% 75.0%
Jun-2011 2010 2010 12.8% 87.8%
Jun-2012 2011 2011 0.0% 87.8%
Jun-2013 2012 2012 5.4% 93.2%
Jun-2014 2013 2013 0.0% 93.2%
Jun-2015 2014 2014 0.0% 93.2%
Interpretation
The Rollover risk is medium. Considering the first rollover term, the probability of building
becoming vacant is 75 % in 5 years and 93 % in 10 years.
61
For the Years Ending Suite No. SF % of Total Rent/SF Annual % of Annual
SF Income Income
Credit Tenants
Bank of America 1034 5,651 12.8% $27.72 $156,672 20.5%
Non-Credit Tenants
Two Girls Inc. 1000 1,200 2.7% $14.00 $16,800 2.2%
Saibaba Cellular 1002 1,100 2.5% 13.96 15,352 2.0%
Beneficial Finance 1004 1,325 3.0% 19.34 25,625 3.3%
Classic Comics 1006 1,200 2.7% 14.82 17,788 2.3%
JJ Pizza 1008 1,200 2.7% 26.00 31,200 4.1%
Community Distribution 1064 13,900 31.4% 11.20 155,680 20.3%
Raymond & Susan 1050 5,000 11.3% 12.48 62,417 8.2%
Dr. Mark Zeintek 1082 1,800 4.1% 27.35 49,233 6.4%
Dr. Eugene & Tendler 1086 1,800 4.1% 15.00 27,000 3.5%
Yuno Corp. 1090 1,200 2.7% 22.10 26,520 3.5%
UPS Store (Jin Kim) 1092 1,200 2.7% 19.77 23,724 3.1%
Sip & Dip 1096 1,200 2.7% 23.05 27,662 3.6%
Krauzer's Food Store 1100 2,400 5.4% 21.63 51,911 6.8%
Ming Feng 0998 1,095 2.5% 19.73 21,604 2.8%
Non-Credit Total/Average 35,620 80.5% $15.51 $552,516 72.2%
Speculative lease 1110 3,000 6.8% 18.75 56,250 7.3%
Total/Average 44,271 100.0% $17.29 $765,438 100.0%
Interpretation:
The above table shows the list of credit and non credit tenants. The credit tenant Bank Of
America occupies 12.8 % of the total square foot and generates the maximum Income, 20.5%
of Total Annual Income.
62
PROPERTY #5
Name : Tri Main

Type : Retail
Value : $ 11,516,794
63
For the Years Ending Sep-2006 Sep-2007 Sep-2008 Sep-2009 Sep-2010 Sep-2011 Sep-2012 Sep-2013 Sep-2014 Sep-2015 Sep-2016

Base Rental Revenue $2,175,461 $2,418,701 $2,430,989 $2,396,355 $2,425,699 $2,494,822 $2,679,437 $2,857,890 $3,004,543 $3,025,701
Absorption & Turnover Vacancy (110,161) (51,927) (27,154) (22,955) (14,371) (189,514) (111,027) (120,896) (49,805) (30,448)
Scheduled Base Rental Revenue 2,065,300 2,366,774 2,403,835 2,373,400 2,411,328 2,305,308 2,568,410 2,736,994 2,954,738 2,995,253
Expense Reimbursement Revenue 597,086 603,430 626,867 663,483 708,002 684,829 659,334 618,070 597,947 639,637
TOTAL POTENTIAL GROSS REVENUE $2,705,293 $3,014,398 $3,076,222 $3,083,769 $3,167,622 $3,039,878 $3,278,977 $3,407,834 $3,607,038 $3,690,874
General Vacancy 0 (40,063) (65,947) (70,247) (81,089) 0 0 0 (59,900) (81,192)
Collection Loss (54,106) (60,288) (61,524) (61,675) (63,352) (60,798) (65,580) (68,157) (72,141) (73,817)
EFFECTIVE GROSS REVENUE $2,651,187 $2,914,047 $2,948,751 $2,951,847 $3,023,181 $2,979,080 $3,213,397 $3,339,677 $3,474,997 $3,535,865
OPERATING EXPENSES
Real Estate Taxes $112,000 $115,360 $118,821 $122,385 $126,057 $129,839 $133,734 $137,746 $141,878 $146,135
Electricity 413,375 425,776 438,550 451,706 465,257 479,215 493,591 508,399 523,651 539,361
Gas 246,000 253,380 260,981 268,811 276,875 285,181 293,737 302,549 311,625 320,974
Water 24,100 24,823 25,568 26,335 27,125 27,939 28,777 29,640 30,529 31,445
Management Fee 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000
Insurance 150,000 154,500 159,135 163,909 168,826 173,891 179,108 184,481 190,016 195,716
Operating Expenses - CAM 690,900 711,627 732,976 754,965 777,614 800,942 824,971 849,720 875,211 901,468
TOTAL OPERATING EXPENSES $1,706,375 $1,755,466 $1,806,031 $1,858,111 $1,911,754 $1,967,007 $2,023,918 $2,082,535 $2,142,910 $2,205,099
NET OPERATING INCOME $944,812 $1,158,581 $1,142,720 $1,093,736 $1,111,427 $1,012,073 $1,189,479 $1,257,142 $1,332,087 $1,330,766

Tenant Improvements $152,591 $126,030 $31,396 $25,882 $13,268 $126,809 $169,003 $121,970 $43,932 $26,966
Leasing Commissions 152,949 127,896 25,699 37,437 17,460 144,501 213,891 153,569 63,544 36,996
Capital Reserve 87,212 89,828 92,523 95,299 98,158 101,103 104,136 107,260 110,477 113,792
TOTAL LEASING & CAPITAL COSTS $392,752 $343,754 $149,618 $158,618 $128,886 $372,413 $487,030 $382,799 $217,953 $177,754
CASH FLOW BEFORE DEBT SERVICE $552,060 $814,827 $993,102 $935,118 $982,541 $639,660 $702,449 $874,343 $1,114,134 $1,153,012
& TAXES
64

Total PSF %
PV of Residual @ 10.0% $6,300,139 $10.84 54.7%
PV of Cash Flow @ 10.0% 5,216,658 8.97 45.3%

Year 11 NOI $1,307,275
65
Discount Rate
9.50% 9.75% 10.00% 10.25% 10.50%
7.50% $12,372 $12,152 $11,937 $11,727 $11,521
(21.28) (20.90) (20.53) (20.17) (19.82)
Terminal Cap Rate 7.75% $12,145 $11,930 $11,720 $11,515 $11,314
(20.89) (20.52) (20.16) (19.80) (19.46)
8.00% $11,932 $11,722 $11,517 $11,316 $11,120
(20.52) (20.16) (19.81) (19.46) (19.13)
8.25% $11,732 $11,527 $11,326 $11,129 $10,937
(20.18) (19.83) (19.48) (19.14) (18.81)
8.50% $11,544 $11,343 $11,146 $10,954 $10,766
(19.86) (19.51) (19.17) (18.84) (18.52)
5.75% $566,196 1.67 7.00% $13,497,000 55.6%
6.25% $593,702 1.59 7.50% $12,597,000 59.5%
6.75% $621,820 1.52 8.00% $11,810,000 63.5%
7.25% $650,526 1.45 8.50% $11,115,000 67.5%
7.75% $679,796 1.39 9.00% $10,498,000 71.4%
Interpretation:
The above table shows that this property has high Debt Service Coverage Ratios and low Loan To Value values. This
means that the default risk of the borrower is very low.
66
For the Years Ending Sep-2006 Sep-2007 Sep-2008 Sep-2009 Sep-2010 Sep-2011 Sep-2012 Sep-2013 Sep-2014 Sep-2015
TENANT SUITE
Freedom Justice & Hope 314 2,867
Optimal Therapy Associa 339 83
Bradford Exploration, I 345 1,430
Optimal Therapy Associa 355 3,420
Erie County Bd of Elect 360 23,000
Mill-Lane Inc. 410 1,210
Catholic Charities 412 1,370
Diane Delfino 414a 229
Glass Roots 430 2,600
McMahon & Mann Cons. 432 3,586
Petrozzi Fine Arts. 433 700
Great Arrow Graphics 457 12,834
Great Arrow Graphics 457a 2,542
McMahon & Mann Cons. 498 138
Buffalo Arts Studio 500 15,850
Nickel City Productions 516 1,400
Board of Education 524 9,300
Optimal Therapy Associa 532 2,480
Semour H. Knox 547 1,055
Buffalo Arts Studio 553 1,085
Louis P. Jacobs 414 578
Gardners Pick of Crop 425 886
Buffalo Inner City Ball 351 4,333
Resource Planning Assoc 343 2,800
Stephanie Costner 466 1,170
Cardoso, Lenz, Toomey 557 1,037
Keller/Grace/Manias 311 1,534
Commonwealth Cultural 448 1,780
The Buffalo Fine Arts A 333 6,716
Rollers Inc. 359 7,300
Advanced Educational 230 2,240
TOTAL 170,827 45,376 0 0 0 0 0 0 0 0
67
Fig.5.5 Lease Expiration Chart

100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
29.4%
30.0%
20.0%
0.0%
10.0% 7.8%
0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
0.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

% of NRAAnnually
Expiring Cumulative
Sep-2006 2006 2006 29.4% 29.4%
Sep-2007 2007 2007 7.8% 37.2%
Sep-2008 2008 2008 0.0% 37.2%
Sep-2009 2009 2009 0.0% 37.2%
Sep-2010 2010 2010 0.0% 37.2%
Sep-2011 2011 2011 0.0% 37.2%
Sep-2012 2012 2012 0.0% 37.2%
Sep-2013 2013 2013 0.0% 37.2%
Sep-2014 2014 2014 0.0% 37.2%
Sep-2015 2015 2015 0.0% 37.2%
Interpretation:
The above chart shows that at the end of 10 years only 37.2 % of the Net Rentable Area gets
rolled over first the first time. This means that the rollover risk is low.
68

SF Income Income
Credit Tenants
The Board of Education 0100 34,102 5.9% $3.40 $115,947 5.6%
Berenson Corp. 0111 48,565 8.4% 4.01 194,746 9.4%
The Safety & Health Tra 0118 2,600 0.4% 2.20 5,720 0.3%
Tri-Main Development 0200 2,200 0.4% 4.50 9,900 0.5%
Food Art Concessions, L 201/20 4,505 0.8% 3.66 16,488 0.8%
Non-Credit Tenants
Decorate by Plan, Inc. 0205 2,529 0.4% $6.45 $16,312 0.8%
Decorate by Plan, Inc. 0208 628 0.1% 3.54 2,223 0.1%
Northeast Agencies Inc. 209/21 21,527 3.7% 2.40 51,665 2.5%
In-Room Plus, Inc. 217/22 17,231 3.0% 2.20 37,908 1.8%
Advanced Educational 0230 2,240 0.4% 4.84 10,845 0.5%
In-Room Plus, Inc. 0234 2,607 0.4% 2.20 5,735 0.3%
Midcity Office Equipmen 0240 12,682 2.2% 5.05 64,044 3.1%
A&M Classic Collection 0300 2,740 0.5% 6.57 18,000 0.9%
Aspire of WNY, Inc. 0302 8,740 1.5% 2.50 21,850 1.1%
Bevlar & Associates, In 0310 2,764 0.5% 6.40 17,690 0.9%
Keller/Grace/Manias 0311 1,534 0.3% 4.04 6,200 0.3%
Freedom Justice & Hope 0314 2,867 0.5% 3.84 11,002 0.5%
Healthnow New York 0330 12,198 2.1% 5.12 62,393 3.0%
The Buffalo Fine Arts A 0333 6,716 1.2% 3.63 24,401 1.2%
Optimal Therapy Associa 0339 83 0.0% 4.41 366 0.0%
The Travel Team Inc. 0340 17,257 3.0% 8.75 150,999 7.3%
Resource Planning Assoc 0343 2,800 0.5% 4.33 12,133 0.6%
Bradford Exploration, I 0345 1,430 0.2% 3.87 5,538 0.3%
Deaf Adult Services 0347 2,532 0.4% 5.45 13,799 0.7%
Bradford Exploration, I 0349 798 0.1% 6.60 5,270 0.3%
Landies Candies Co., In 0350 22,300 3.8% 1.31 29,139 1.4%
Buffalo Inner City Ball 0351 4,333 0.7% 1.76 7,612 0.4%
Optimal Therapy Associa 0355 3,420 0.6% 1.68 5,729 0.3%
Rollers Inc. 0359 7,300 1.3% 3.49 25,501 1.2%
Erie County Bd of Elect 0360 23,000 4.0% 3.99 91,828 4.4%
Oceana Direct Ltd 0401 2,813 0.5% 5.10 14,346 0.7%
Progressive Specialty 0402 1,590 0.3% 4.25 6,758 0.3%
Progressive Specialty 402a 360 0.1% 4.25 1,530 0.1%
69
Crisis Services, Inc. 0404 2,130 0.4% 4.90 10,437 0.5%
Teachspin Inc. 0409 6,827 1.2% 5.00 34,135 1.7%
Mill-Lane Inc. 0410 1,210 0.2% 4.15 5,022 0.2%
Delaware Soccer Club 0411 725 0.1% 4.48 3,250 0.2%
Catholic Charities 0412 1,370 0.2% 4.19 5,737 0.3%
Associated Builders 0413 6,662 1.1% 3.35 22,318 1.1%
Louis P. Jacobs 0414 578 0.1% 4.20 2,427 0.1%
Diane Delfino 414a 229 0.0% 4.01 919 0.0%
Leonard Mattie 0416 372 0.1% 6.50 2,418 0.1%
Aspire of WNY, Inc. 0417 8,372 1.4% 2.50 20,930 1.0%
Darcy Dyll 0418 2,071 0.4% 5.74 11,888 0.6%
First Hand Learning 0419 1,332 0.2% 4.37 5,821 0.3%
Buffalo Society of Natu 0421 2,850 0.5% 4.73 13,481 0.7%
Aspire of WNY, Inc. 0422 3,392 0.6% 2.50 8,480 0.4%
Gardners Pick of Crop 0425 886 0.2% 4.08 3,618 0.2%
Arnak Art Gallery 0427 880 0.2% 4.50 3,960 0.2%
Glass Roots 0430 2,600 0.4% 4.10 10,667 0.5%
Kevin Connors & Assoc. 0431 340 0.1% 7.60 2,584 0.1%
McMahon & Mann Cons. 0432 3,586 0.6% 1.71 6,126 0.3%
Petrozzi Fine Arts. 0433 700 0.1% 4.12 2,887 0.1%
BHNT Architects 0434 4,780 0.8% 4.39 20,984 1.0%
Ram-Tech Engineers 0435 1,392 0.2% 4.13 5,745 0.3%
Royal Green 0437 886 0.2% 3.78 3,345 0.2%
WYNCOSH 0438 1,725 0.3% 3.00 5,175 0.3%
Aspire of WNY, Inc. 0439 4,169 0.7% 2.50 10,422 0.5%
Beth Munro 0440 1,090 0.2% 4.95 5,396 0.3%
Roar Logistrics 0442 1,710 0.3% 7.79 13,324 0.6%
Robert Budin 0444 1,170 0.2% 4.92 5,756 0.3%
Drapery World 0445 4,773 0.8% 1.77 8,452 0.4%
Drapery World 445a 2,559 0.4% 1.77 4,531 0.2%
Sean Hus Var 0446 1,964 0.3% 5.85 11,489 0.6%
Commonwealth Cultural 0448 1,780 0.3% 3.67 6,527 0.3%
STZ Textile 0449 3,056 0.5% 4.03 12,326 0.6%
ESR Agency, Inc. 0450 1,420 0.2% 6.34 9,003 0.4%
John W. Adams 0452 1,240 0.2% 5.51 6,831 0.3%
Winc Logistics 0453 3,612 0.6% 4.47 16,146 0.8%
Great Arrow Graphics 0457 12,834 2.2% 1.68 21,604 1.0%
Great Arrow Graphics 457a 2,542 0.4% 1.66 4,215 0.2%
Rena Reisman 0459 420 0.1% 6.57 2,760 0.1%
Baer & Associates 0460 635 0.1% 3.75 2,381 0.1%
Reasearch Fundation SUN 0462 1,500 0.3% 7.00 10,500 0.5%
Stephanie Costner 0466 1,170 0.2% 4.58 5,363 0.3%
70
Baer & Associates 0470 3,516 0.6% 6.47 22,766 1.1%
McMahon & Mann Cons. 0498 138 0.0% 4.26 588 0.0%
Buffalo Arts Studio 0500 15,850 2.7% 3.90 61,881 3.0%
Buffalo Arts Studio 507/11 1,740 0.3% 4.79 8,335 0.4%
Buffalo Arts Studio 508,51 6,016 1.0% 3.50 21,056 1.0%
Jackie Felix 0509 1,220 0.2% 4.52 5,514 0.3%
Collett Gunther 0513 300 0.1% 4.80 1,440 0.1%
Nickel City Productions 0516 1,400 0.2% 1.68 2,345 0.1%
Board of Education 0524 9,300 1.6% 4.25 39,494 1.9%
Optimal Therapy Associa 0532 2,480 0.4% 2.79 6,913 0.3%
Buffalo Fed. Of Neighbo 0534 6,110 1.1% 7.88 48,147 2.3%
Fray Products Corp. 0543 2,150 0.4% 4.36 9,371 0.5%
Impact Artist's Gallery 0545 2,170 0.4% 3.83 8,314 0.4%
Semour H. Knox 0547 1,055 0.2% 4.19 4,416 0.2%
Allsorts Premium Packag 0548 5,340 0.9% 4.42 23,585 1.1%
Michael Morgulis 0549 1,060 0.2% 5.04 5,342 0.3%
First Hand Learning 0550 10,377 1.8% 5.05 52,404 2.5%
Isabell Pelissier 0551 1,060 0.2% 4.19 4,441 0.2%
Arnak Art gall 553a 524 0.1% 5.04 2,641 0.1%
Medaille College 0554 2,700 0.5% 5.75 15,525 0.8%
Cardoso, Lenz, Toomey 0557 1,037 0.2% 4.17 4,321 0.2%
American Executive 0600 59,350 10.2% 3.00 178,050 8.6%
Non-Credit Total/Average 433,518 74.6% $416.63 $1,658,366 80.3%
Vacant 1 203 1,539 0.3% 3.75 5,771 0.3%
Vacant 2 229 29,261 5.0% 0.00 0 0.0%
Vacant 3 307 1,770 0.3% 3.75 6,638 0.3%
Vacant 4 315 2,481 0.4% 2.50 6,203 0.3%
Vacant 5 317 2,052 0.4% 3.75 7,695 0.4%
Vacant 6 426 2,257 0.4% 2.50 5,643 0.3%
Vacant 7 429 886 0.2% 3.75 3,323 0.2%
Vacant 8 456 3,435 0.6% 1.25 4,294 0.2%
Vacant 9 464 1,131 0.2% 3.75 4,241 0.2%
Vacant 10 499 79 0.0% 3.75 296 0.0%
Vacant 11 512 2,683 0.5% 2.50 6,708 0.3%
Vacant 12 542 6,042 1.0% 1.25 7,553 0.4%
Vacant 13 2,307
556 0.4% 2.50 5,768 0.3%
Vacant Total/Average 55,923 9.6% $35.00 $64,133 3.1%
Total/Average 581,413 100.0% $469.40 $2,065,300 100.0%
Interpretation:
This Property has 5 credit tenants who occupy 15.8 % of the total area occupied and they
generate 16.6% of the total annual income. Hence these tenants’s default risk will be very
low, their probability of vacating is low and they generate more income for the property as a
whole.
71
COMPARISON OF PROPERTIES
1. LOAN TO VALUE
Table 5.36 Comparison Of LTVs
Property Name LTV
Altamont 73.87%
Orchards 73.56%
Sunrise 92.17%
Georges Avenue 76.62%
Tri-Main 65.84%
Loan To Value is the most important factor which any lender should consider before
financing a loan. The lower the Loan To Value, the higher it is beneficial to the lender,
which means that the lender would prefer the LTV of 65.84% keeping the loan amount
to be constant. In case of long term decisions this is an important ratio under
consideration.
2. DEBT SERVICE COVERAGE RATIO
Table 5.37 Comparisons Of DSCRs
Property Name DSCR
Altamont 1.1
Orchards 1.24
Sunrise 1.09
Georges Avenue 1.12
Tri-Main 1.52
Debt Service Coverage Ratio is another important factor which determines the
lending of loan. This ratio determines the ability of the borrower to service his debt.
3. CREDIT RATING OF THE TENANTS
72
Table 5.38 Comparison Of Tenant Credit Worthiness
No of credit % of Total % of Annual

Property Name tenants SF Income
Altamont 2 3.10% 5.20%

Orchards 0 0.00% 0.00%
Sunrise 0 0.00% 0.00%
Georges Avenue 1 12.80% 20.50%
Tri-Main 5 15.80% 16.60%
In terms of area occupied and percentage of annual income of the credit

tenants, Tri-Main and Georges Avenue are more attractive.
4. ROLLOVER RISK
Table 5.39 Comparison Of Rollover Risks
% rolled
Property Name over % rolled over
(5 yr period) (10 yr period)
Altamont 96.50% 96.50%
Orchards 59.00% 69.10%
Sunrise 79.10% 100.00%
Georges Avenue 75.00% 93.20%
Tri-Main 37.20% 37.20%
The table depicts the risk of the building becoming vacant in 5 years and 10 years.
Rollover is considered a risk because the landlord will have to take efforts to bring in
new tenants. If he delays or fails, the rental income of the landlord is at risk. This
would affect the landlord’s ability to repay the debt. Considering this factor property
Tri-Main is the best as it has least probability of becoming vacant.
5. LOCATION
The following locations have been ranked based on the Rent Per Square Foot in
that locality
73
1. New York - $ 30 PSF
2. New Jersey - $ 25 PSF
3. California - $ 10.8 PSF
Table 5.40 Comparison Of Evaluation Parameters
Property Name Parameters

Location LTV DSCR % Income from Credit tenants Rollover Risk
(10 years)
Altamont New York 73.87% 1.1 5.20% Very High
Orchards New Jersey 73.56% 1.24 0.00% Medium
Sunrise California 92.17% 1.09 0.00% Very High
Georges Avenue New Jersey 76.62% 1.12 20.50% High
Trimain New York 65.84% 1.52 16.60% Very Low
74
CHAPTER VI - SUMMARY OF FINDINGS
• The property Trimain has the least LTV of 65.84 % which makes it most desirable and the
property Sunrise has the highest LTV of 92.17 % which makes it least desirable.
• The ideal DSCR value is 1.25. Accordingly, Orchards is considered to be the best.
• Property Tri-Main has the maximum number of credit tenants. The percentage of Square foot
occupied by them is 15.8%. The income generated by the credit tenants for this property is
16.6%.
• Property Tri-Main has the least Rollover Risk of 37.2% and property Altamont has the highest
risk because 96.5 % gets rolled over in 5 years period.
• Location wise New York properties yield more income when compared to New Jersey and
California properties. This was concluded by analyzing the Per Square Foot market rents of
those regions.
• Based on this analysis, it has been concluded that Tri-Main is the best among five given
properties. The risk is at minimum if the lender decides to finance for this property.
75
SUGGESTIONS
1. Among the Non Credit tenants, the lender could select properties in which the Rent Per Square
Foot paid by the tenants is higher. This would improve the returns of the landlord and thereby
the default risk reduces.
2. The rollover risk can be minimized after considering the tenant history while selecting the
property to lend.
3. If the client provides details about the industry back ground of the tenants, it would have
facilitated projection of the performance of the tenant.
4. The client’s specifications could have been more flexible. In this case, if the loan amount was
not fixed, and the client had expected to find the extent of loan that could be financed for each
property, the analysis would have been more comprehensive.
5. More importance could be given for long term leases. The risk involved is less in case of such
kind of leases.
76
CONCLUSION
The outcome of the project facilitated the lending decision of the client. The analysis includes
cash flow projections, Loan to Value, Debt Service Coverage Ratio, Sensitivity analysis, credit
worthiness of the tenants and lease rollover risk.
Apart from the major parameters, amenities, and demographics were also considered.
After evaluating all the parameters it is found that Property Tri-Main is the best and it suits the
requirements specified by the client.
77
REFERENCES
Websites
• www.reis.com
• www.realcapitalanalytics.com
• www.tortowheaton.com
• www.federalreserve.gov
• www.realtyrates.com
• www.hoovers.com
• www.standardsandpoors.com
• www.moodys.com
78
ANNEXURES
Altamont
MODELLING ASSUMPTIONS
79
Analysis Start Date: July 1, 2005
Growth Rates (Per Annum
) 2006 2007 2008 2009
Market Rent 3.00% 3.00% 3.00% 3.00%
Operating Expenses 3.00% 3.00% 3.00% 3.00%
Tenant Alterations 3.00% 3.00% 3.00% 3.00%
Capital Reserve 3.00% 3.00% 3.00% 3.00%
Assumptions For Future Leases Retail Large Office Small Office

Market Rent (PSF) $200.00 $25.00 $25.00
Operating Escalation* None None None
Renewal Probability 60% 60% 60%
Lease Term (Years) 5 10 5
Base Rent Steps (Annual Inc.) 3.0% Inc. Annual 3.0% Inc. Annual 3.0% Inc. Annual
Free Rent (# of months)
New Leases 6 6 4
Renewal Leases 3 3 2
Tenant Alterations (PSF)**
New Leases $0.00 $30.00 $20.00
Renewal Lease $0.00 $15.00 $10.00
Speculative Renewal (W eighted Average) $0.00 $21.00 $14.00
Leasing Commissions
New Leases 4.00% 3.50% 4.00%
Renewal Leases 2.00% 1.75% 2.00%
Speculative Renewal (W eighted Average) 2.80% 2.45% 2.80%
Downtime (Months)
New Tenants 8.00 8.00 8.00
Renewal Tenants 0.00 0.00 0.00
Speculative Renewal (W eighted Average) 3.20 3.20 3.20
Other Assumptions
Vacancy Factor (% of Potential Gross Revenue)* 0.00%
General Credit Loss 0.00%
Replacement Reserve/SF $0.20
Equity Assumptions
Stabilized Value $10,197,000
Discount Rate 10.00%
Terminal Capitalization Rate 8.00%
Direct Capitalization Rate 8.00%
Costs of Sale (%) 0.00%
Debt Assumptions Senior loan Mezzanine loan Mezzanine Loan
Loan Amount $7,500,000 $0 $0
LTV Maximum 73.6% 0.00% 0.00%
DSCR Minimum 1.25 1.25 1.25
Rate Index / Base Rate 5.00% 0.00% 0.00%
Rate Spread 0.00% 0.00% 0.00%
Interest Rate 6.75% 0.00% 0.00%
Term (Yrs.) 10 8 8
Amort. (Yrs.) 25 25 25
Orchards
MODELLING ASSUMPTIONS:
80
Growth Rates (Per Annum ) 2006 2007 2008
Market Rent 3.00% 3.00% 3.00%
Operating Expenses 3.00% 3.00% 3.00%
Tenant Alterations 3.00% 3.00% 3.00%
Capital Reserve 3.00% 3.00% 3.00%
Assumptions For Future Leases Retail Medical Office Food Tenants

Market Rent (PSF) $25.00 $20.00 $25.00
Operating Escalation* Net Net Net
New Leases 0 0 0
New Leases $5.00 $10.00 $5.00
Renewal Lease $0.00 $5.00 $0.00
Speculative Renewal (Weighted Average) $1.25 $6.25 $1.25
Leasing Commissions
New Leases 5.00% 5.00% 5.00%
Speculative Renewal (Weighted Average) 5.00% 5.00% 5.00%
Downtime (Months)
New Tenants 4.00 4.00 4.00
Speculative Renewal (Weighted Average) 1.00 1.00 1.00
Other Assumptions
Equity Assumptions
Loan Amount $7,500,000 $0 $0
LTV Maximum 73.6% 0.00% 0.00%
Rate Spread 0.00% 0.00% 0.00%
Interest Rate 6.75% 0.00% 0.00%
Term (Yrs.) 10 8 8
Amort. (Yrs.) 25 25 25
Sunrise
81
Growth Rates (Per Annum) 2006 2007 2008 2009
Market Rent 3.00% 3.00% 3.00% 3.00%
Operating Expenses 3.00% 3.00% 3.00% 3.00%
Capital Reserve 3.00% 3.00% 3.00% 3.00%
Assumptions For Future Leases Inline
Market Rent (PSF) $24.00
Operating Escalation* Base Stop
Renewal Probability 70%
Lease Term (Years) 5
Base Rent Steps (Annual Inc.) 3.0% Inc. Annual
New Leases 0
Renewal Leases 0
New Leases $10.00
Renewal Lease $2.50
Speculative Renewal (Weighted Average) $4.75
Leasing Commissions
New Leases 5.00%
Renewal Leases 2.50%
Speculative Renewal (Weighted Average) 3.25%
Downtime (Months)
New Tenants 9.00
Renewal Tenants 0.00
Speculative Renewal (Weighted Average) 2.70
Other Assumptions
Equity Assumptions
Loan Amount $7,500,000 $0 $0
LTV Maximum 100.3% 0.00% 0.00%
Rate Spread 0.00% 0.00% 0.00%
Interest Rate 6.75% 0.00% 0.00%
Term (Yrs.) 10 8 8
Amort. (Yrs.) 25 25 25
Georges Avenue
82

Growth Rates (Per Annum) 2006 2007 2008
Market Rent 3.00% 3.00% 3.00%
Operating Expenses 3.00% 3.00% 3.00%
Tenant Alterations 3.00% 3.00% 3.00%
Capital Reserve 3.00% 3.00% 3.00%
Assumptions For Future Leases Retail Branch Bank Large Retail
Market Rent (PSF) $25.00 $30.00 $20.00
Operating Escalation* Net Net Net
New Leases 0 0 0
New Leases $5.00 $5.00 $5.00
Renewal Lease $0.00 $0.00 $0.00
Speculative Renewal (Weighted Average) $1.25 $1.25 $1.25
Leasing Commissions
New Leases 5.00% 5.00% 5.00%
Speculative Renewal (Weighted Average) 1.25% 1.25% 1.25%
Downtime (Months)
New Tenants 4.00 4.00 4.00
Speculative Renewal (Weighted Average) 1.00 1.00 1.00
Other Assumptions
Equity Assumptions
Loan Amount $7,500,000 $0 $0
LTV Maximum 76.6% 0.00% 0.00%
Rate Spread 0.00% 0.00% 0.00%
Interest Rate 6.75% 0.00% 0.00%
Term (Yrs.) 10 8 8
Amort. (Yrs.) 25 25 25
83
Tri Main
MODELLING ASSUMPTIONS:
Analysis Start Date: October 1, 2005

Grow th Rates (Per Annum
) 2006 2007 2008 2009
M arket Rent 3.00% 3.00% 3.00% 3.00%
O perating Expenses 3.00% 3.00% 3.00% 3.00%
Capital Reserve 3.00% 3.00% 3.00% 3.00%
Assum ptions For Future Leases Sem i Gross Net G ross

M arket Rent (PSF) $5.00 $2.00 $5.00
Operating Escalation* Base Stop Net None
Free Rent (# of m onths)
New Leases 0 0 0
New Leases $2.00 $2.00 $2.00
Renewal Lease $0.00 $0.00 $0.00
Speculative Renewal (W eighted Average) $0.70 $0.70 $0.70
Leasing Com m issions
New Leases 6.00% 6.00% 6.00%
Speculative Renewal (W eighted Average) 4.05% 4.05% 4.05%
Dow ntim e (Months)
New Tenants 6.00 6.00 6.00
Speculative Renewal (W eighted Average) 2.10 2.10 2.10
Other Assum ptions
Vacancy Factor (% of Potential Gross R evenue)* 3.00%
Equity Assum ptions
Term inal Capitalization Rate 8.00%
Costs of Sale (% ) 0.00%
Debt Assum ptions Senior loan Mezzanine loan M ezzanine Loan
Loan Am ount $7,500,000 $0 $0
LTV Maximum 65.1% 0.00% 0.00%
DSCR M inim um 1.25 1.25 1.25
Rate Index / Base R ate 5.00% 0.00% 0.00%
Rate Spread 0.00% 0.00% 0.00%
Interest Rate 6.75% 0.00% 0.00%
Term (Yrs.) 10 8 8
Amort. (Yrs.) 25 25 25
84

Master of Business Administration Karthiga. D

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A FINANCIAL ANALYSIS OF RETURNS FROM COMMERCIAL REAL ESTATE

PROPERTIES IN THE UNITED STATES

MASTER OF BUSINESS ADMINISTRATION

INTERNAL GUIDE: EXTERNAL GUIDE:

DEPARTMENT OF MANAGEMENT STUDIES

MARCH- APRIL 2011

I, KARTHIGA. D, Student of Department of Management Studies, Pondicherry

DATE: Signature of the candidate

I place on record my sincere gratitude and appreciation to my project guide Dr.B.CHARUMATHI,

1.1 INTRODUCTION TO THE TOPIC:

1.2 STATEMENT OF PROBLEM

1.5 LIMITATION OF THE STUDY

1.6 RESEARCH METHODOLOGY

• The data collected were compiled and analyzed in chapter 4.

Founded in 2001, Zenta is a world-class knowledge process

With 4,500+ employees worldwide, Zenta has operations in six

Vision & Mission

INDUSTRY AND SERVICES

Commercial Real Estate Services

Commercial Real Estate Services include

Residential Mortgage Services

• Residential Master Servicing

Health Care Services

Revenue Care Services

THE US REAL ESTATE INDUSTRY

Real Estate Property Types:

INCOME STREAMS FROM COMMERCIAL PROPERTY TYPES

Major Participants In The Real Estate Industry

• Marketing and leasing

Brokers/ Leasing Agents:

Direct Capitalization Model:

Discounted Cash flow model: n

V10 = NOI11 / Terminal Cap Rate

Net Present Value (NPV):

NPV = Present Value of cash inflows - Present Value of cash outflows

Internal Rate of Return:

3.2 EVALUATION PARAMETERS

B. Debt Service Coverage Ratio

Table 3.1 Credit Rating Table

General Credit Quality Standard & Poors Moody's

D. Lease Rollover risk

Name : Altamont Avenue

Scheduled Base Rental Reven 33

Table 5.3 Present Value Summary

Table 5.4 NPV Sensitivity Table

Debt Service Coverage Matrix Loan To Value Matrix

For the Years Ending Jun-2006Jun-2007Jun-2008Jun-2009Jun-2010Jun-2011Jun-2012Jun-2013Jun-2014Jun-2015

Year % of NRA Expiring

Total/Average 60,802 100.0% $34.75 $2,112,952 100.0%

POTENTIAL GROSS REVENUE

LEASING & CAPITAL COSTS

Table 5.10 Terminal Value Calculation

Present Value Analysis - Total/(PSF) (in '000s)

7.75% $10,719 $10,537 $10,359 $10,185 $10,015

Dr. Messo 3,524

Lease Expiration Analysis

% of NRA Expirin g Annually % of NRA Expiring Cu mulative

Year % of NRA Expiring

LEASING & CAPITAL COSTS

Table 5.17 Terminal Value Calculation

Terminal Cap Rate

Lease Expiration Analysis