Office Development Model

Real estate technical case study example for an office development project

Assumptions

Development Program

  • 200,000 SF office building
  • Land purchase price: $20M ($100 per FAR)
  • Closing Costs: 1% of purchase price
  • Hard Costs: $300 psf
  • Soft Costs: (excluding TI’s, LC’s and Debt): 15% of hard costs
  • TI’s: $60 psf – paid at tenant occupancy
  • LC’s: $18 psf – paid six months before tenant occupancy

Construction & Lease-up

  • 24 Month Construction Period, beginning at land close date
  • Costs spent evenly over construction period
  • 2 Tenant Lease-up of equal size (one tenant at construction completion; one 6 months after completion)
  • Lease up to 95%
  • Rent $4.25 NNN
  • Free Rent: 3 months free
  • Annual rental bumps: 3%
  • Annual Operating Expenses during Lease-Up: $16 psf

Debt Assumptions

  • 60% LTC
  • Rate: 5% all-in interest rate
  • All equity drawn first; then debt
  • Use available cash flow to offset debt costs, as available

Hold Period

  • 5 years after stabilization
  • Exit Cap Rate: 5.5%
  • Transaction Fees: 1.5%

Required Output

  • Required Project Equity, Net Profit, IRR and ROC (Return on Capital)
  • Required LP (after promote) Equity, Net Profit, IRR and ROC

Model