Shady Trail
Real Estate Finance and Investment
Shady Trail case
Datum: 31-1-2012
Taco van der Hoest 303450
Dave Tettero 291138
Executive Summary
This report provides an analysis and evaluation of the current and prospective profitability of the Shady Trails property. Methods of analysis include trend, horizontal and vertical analysis as well as calculations such as Return on Assets, Return on Equity, Loan-to-Value ratio and the Gross Rent Multiplier. All calculations are found in the appendices.
Original Setup
Using the original assumptions our initial results regarding the desired profitability of the Shady trail are positive: * Net Operating Income (NOI), Cash Flow from Operations (CFO) and Cash Flow after Financing (CFAF) are all positive. * A Loan-to-Value Ratio of 70% is acceptable for a small industrial property. * Gross Rent Multiplier (GRM) of 113 means the property has good market value. * Return on Assets (ROA) of 8.74% and Return on Equity (ROE) of 12.4% is positive. * Internal Rate of Return (IRR) is 19% and exceeds the investors’ expectations.
Results of the initial data analysis shows that all financial calculations and ratios are positive. The high ROE and ROA ratios and most importantly the high IRR ratio of 19% leads us to our initial conclusion: we believe that the Shady Trail property is a good investment opportunity for Mr. Lunsford and his investors.
After revising the initial assumptions, our consultants have suggested several changes to the original Shady Trail setup:
Base rent
The base rent of $3.90 per square foot for Shady Trail is not conform the current market rents. * We advise to adjust the base rent to a more fair priced rate of $3.25 per square foot.
Vacancy
The 5% vacancy rate does not reflect the industry and local avg. of 9.6% and 7.6% respectively. * As the future growth rates are mildly positive we suggest a vacancy rate of 7%.
Structural reserve
Structural reserves on average
Shady Trail case
Datum: 31-1-2012
Taco van der Hoest 303450
Dave Tettero 291138
Executive Summary
This report provides an analysis and evaluation of the current and prospective profitability of the Shady Trails property. Methods of analysis include trend, horizontal and vertical analysis as well as calculations such as Return on Assets, Return on Equity, Loan-to-Value ratio and the Gross Rent Multiplier. All calculations are found in the appendices.
Original Setup
Using the original assumptions our initial results regarding the desired profitability of the Shady trail are positive: * Net Operating Income (NOI), Cash Flow from Operations (CFO) and Cash Flow after Financing (CFAF) are all positive. * A Loan-to-Value Ratio of 70% is acceptable for a small industrial property. * Gross Rent Multiplier (GRM) of 113 means the property has good market value. * Return on Assets (ROA) of 8.74% and Return on Equity (ROE) of 12.4% is positive. * Internal Rate of Return (IRR) is 19% and exceeds the investors’ expectations.
Results of the initial data analysis shows that all financial calculations and ratios are positive. The high ROE and ROA ratios and most importantly the high IRR ratio of 19% leads us to our initial conclusion: we believe that the Shady Trail property is a good investment opportunity for Mr. Lunsford and his investors.
After revising the initial assumptions, our consultants have suggested several changes to the original Shady Trail setup:
Base rent
The base rent of $3.90 per square foot for Shady Trail is not conform the current market rents. * We advise to adjust the base rent to a more fair priced rate of $3.25 per square foot.
Vacancy
The 5% vacancy rate does not reflect the industry and local avg. of 9.6% and 7.6% respectively. * As the future growth rates are mildly positive we suggest a vacancy rate of 7%.
Structural reserve
Structural reserves on average