Real Estate Financial Modeling Course – Office Development

This course is based on the following Case Study:

Background

As an investor at Udemy Capital specializing in office building developments, you are planning to purchase a land plot to develop a modern, build-to-suit office building for a major tenant who is willing to sign a 10-year lease (with no break options) for their headquarters. As part of Udemy Capital’s underwriting process you need to model the following assumptions on a monthly cash flow basis. If you think, that some of these assumptions may not make sense or could be more accurate, feel free to change them as long as you justify it properly.

Land & Acquisition Costs

• Location: Barcelona’s Prime Office Area
• Purchase of the Land on 01 January 2025
• Land Purchase Price: to be determined by a minimum Levered IRR (LIRR) of 15% and an Equity Multiple (EM) of at least 1.80x
• Buildability: 10,000 sqm
• Real Estate Transfer Tax: 10% over Land Purchase Price
• Notary & Registry: 0.25% over Land Purchase Price
• Buy-Side Brokerage Fee: 1.50% over Land Purchase Price
• Due Diligence: 75,000€

Development

• Project: 10,000 sqm
• Construction Period: 18 months starting in Month 1
• Hard Costs: 1,800 €/sqm
• Soft Costs: 15% over Hard Costs
• Contingency: 5% over Hard + Soft Costs
• Leasing Costs: 1 month of Rent
• Tenant Improvements: 23.50 €/sqm to be paid out for 2 months and starting the first month of rent

Operations

• Gross Leasable Area (GLA): 10,000 sqm
• Rent: 23.50 €/sqm
• Yearly Rental Bump: 2.50% on each lease anniversary
• Free Rent: 5 months of rent
• Operating Expenses (Opex): 15% over Gross Rental Income
• Non-Recoverable Expenses: 10% of Opex
• Building Capex Maintenance: 5% over Gross Rental Income

Exit / Sale

• Holding Period: 5 years
• Exit Cap Rate: 4.25%
• Selling Costs: 1.50% over Sales Proceeds

Acquisition Loan

• None, land will be acquired with Equity

Development Loan

• Loan to Cost (LTC): 60%
• Arrangement Fee: 1.00% over Loan Proceeds
• Equity First Structure
• All-in interest rate: 5.50%
• Repayment: bullet at Refinance

Refinance Loan

• Refinance Month: at stabilization after TIs and Free Rent Periods
• Arrangement Fee: 1.00% over Loan Proceeds
• LTV: 55% of value at refinance
• Cap Rate at Refinance: 4.75%
• All-in interest rate: 4.50%
• Amortization: French amortization schedule
• Loan Term: 15 years

Outputs

In order for your Investment Committee to consider this deal you will need to show:

• Annual Cash Flow Tab
• Land Purchase Price
• Levered IRR
• Equity Multiple
• Profit
• Equity Peak
• Sensitivity Tables

  – Rent and Hard Cost

  – Land Purchase Price and Exit Cap Rate