1. Criteria for making decision

2. Making a decision  Rules-of-thumb: –Market Multipliers  RPF, SPPF, OER –Income Multipliers  GIM, NIM, BTCF ATCF –Rates of return  OCR, EDR, ATR  Traditional appraisal: –Market Comparison Approach –Cost Approach –Income Approach

3. Market Multipliers  Rent per square foot (RPF) –Determine Rent by collecting market data –The comparables are examined in terms of Date sales Lease terms Lease Options Physical Characteristic: Age, Location, Size Tenant Rating –Justify the proper lease using the most comparable.

4. Market Multipliers: Comparisons  Sales Price per square foot –determine the price of the property based on its size (area) –Comparison is required based on the previous slide.  Sales Price per square foot: SPPF  Gross Income Multiplier: GIM  Operating Expense Ratio: OER

5. Market Multipliers Comp 1 Comp 2 Comp3 Rent per square foot (net) $15.60 $14.20 $14.25 (Income at sales / Net leaseable area) Rent per square foot (gross) $14.80 $14.10 $13.85 (Income at sales / Gross area) GIM 5.11 4.90 4.88 (Sales price / Income at sales) OER 40% 38.5% 38% (Operating expense at sales / Effective Gross Income)

6. Homework  Make the comparison Analysis for rental comparables. Design your sheet. Then estimate the market rent and rates used for analyzing the investment  Forecast NOI under the existing leases for 6 years. Detail your assumption (if any)  Calculate the cash flow from selling the building at the end of year 5.

7. Constructing a debt service table  Mortgage Constant: MC = i/m 1 - 1 1 + i nxm Loan principle $1,000,000 bath at 7% per annum 25 yrs. Monthly compounding. What is the monthly payment Monthly payment = Principal x MC