How much are you willing to pay for Tower Square, if you expect to hold the property for 3 years and demand an 8% return? Use the following assumptions in your discounted cash flow approach to this problem. (Hint: You already did Year 1 in number 7)
Tower Square is a 3-story mixed used facility
Stores on the 1st floor combined pay monthly rent of $12,000
The apartments (2nd & 3rd story combined) pay rent of $18,000/month
Vacancy & Collection losses are 5% of PGI per year
Tower Square has a cell tower on its roof generating income of $25,000/year
Operating Expenses are $75,000/year
Replacement Reserve is $12,500/year
Rents are expected to grow at 4% per year
Vacancy & Collection losses are expected to remain at 5% of PGI per year
The income from the cell tower is expected to remain constant
Operating Expenses are expected to grow at 3% per year
Replacement Reserve is constant
Terminal cap rate is 6.75%
Question 7 options:
4,670,355
3,947,883
4,456,104
3,715,869