1.

Calculate the Gross Potential Incoming for a property with 18 commercial unites that each
rent for € 1,250 per month.
1250*12*18=270000

2. Calculate the effect gross income of the above property of 15% of the potential rent is not
collected due to vacancy or nonpayment collection losses.
270000*(1-15%)=229500

3. Calculate the annual property management fee for the property in question 1 and 2
assuming the brokerage handing the property management account is charging a 10%
management fee.

229500*10%=22950

4. Calculate the annual property management fee for a 20 unit apartment building where the
units rent for € 800 monthly and the property has a 10% vacancy rate while the property
manager is charging an 8% management fee.

20*800*12*(1-10%)*8%=13824

5. Calculate the net operating income of a triplex property that is fully rented with each of the
unit generating a €750 monthly rental rate with a 5% annual collection lose and a 5%
management fee. The property has annual repair costs of €800 per unit.

3*750*12*(1-5%)*(1-5%)-3*800=21967,5

6. The following table shows two 10-year cash flow projections (in $ millions, including
reversion) for the same property. The upper row is the projection that will be presented by
the broker trying to sell the building, and the bottom row is the realistic expectations.
Suppose that it would be relatively easy for any potential buyers to ascertain that the most
likely current market value for the property is about $10 million.

a. What going-in IRR (blended rate) will equate the presented cash flow projection to the
observable $10 million present value (as of year 0)?

13%

b. What rate will equate the realistic projection to that same present value?
11%

c. What is the most likely amount of ‘‘disappointment’’ in the ex post rate of return earned
by an investor who buys this property believing the broker’s cash flow projection (i.e., the
difference in presented versus realistic return)?
2%

7. Consider a property with expected future net cash flows of $25,000 per year for the next five
years (starting one year from now). After that, the operating cash flow should step up 20%,
 to $30,000, for the following five years. If you expect to sell the property 10 years from now
for a price 10 times the net cash flow at that time, what is the value of the property if the
required return is 12%?

1 2 3 4 5 6 7 8 9 10
Operati 25 25 25 25 25 30 30 30 30 30
ng CF
Reverse CF 300
Total 25 25 25 25 25 30 30 30 30 330
CF

1 1 5 1 1 1 5 1
PV @12%=25 ∗ 0.12 [1 − (0.12) ] + (1+0.12)5 ∗ 30 ∗ 0.12 [1 − (1+0.12) ] + 300 ∗ (1+0.12)10 = 248.07

8. Show a 10-year proforma projection of the operating NOI and net property-before-tax cash
flow (PBTCF) for a three-unit apartment house in which (a) each unit currently (year 1) rents
for $300/month; (b) rents are projected to grow at 3% per year; (c) the average tenant will
remain three years, and then the apartment will be vacant an average of three months before
the next tenant moves in; (d) operating expenses are currently estimated at $1,500 per unit
per year (including management expenses), expected to escalate at 3% per year; (e) you
anticipate needing to replace kitchen appliances for $1,000 per unit in year 3; and (f ) you
anticipate having to replace the single roof for $2,500 in year 5. Suppose the Going-out cap
rate is 9%.

9. A 150,000-SF office building has a triple-net lease providing a constant rent of $20/SF per year.
(With a triple-net lease, you can assume the rent equals the net operating cash flow.) The
lease has five years before it expires (i.e., assume the next payment comes in one year, and
there are four more annual payments after that under the present lease). Rents on similar
leases being signed today are $22/SF. You expect rents on new leases to grow at 2.5% per year
for existing buildings. You expect to release the building in year 6 after the current lease
expires, but only after experiencing an expected vacancy of six months, and after spending
$10/SF in tenant improvements (TIs). After 10 years, you expect to sell the building at a price
equal to 10 times the then-prevailing rent in new triple-net leases. Based on survey
information about typical going-in IRRs prevailing currently in the market for this type of
property, you think the market would require a 12% expected return for this building. What
is the NPVof an investment in this property if the price is $30 million? Should you do the deal?