After analyzing the facts and figure it is concluded that the expected value of land may be contain the rate of cap is 6.5% upon the completion of the project. With the Capital expenditures share of 20% this rate will be make the cash yield of 5.2%.
The NOI was calculated on the basis of grossing up NOI provided in the Exhibit # 16 at a annual rate of 3% for 1 year and 8 months. So the 20% of this amount move towards the Capital expenditures. The cost of land acquisition is the money that a developer will spend on the site. At the same time the cash flows of property should at least 5.2% of the total cost of the project. The cost of project includes the cost of development, land and the construction financing.$1,653,258 is the calculated amount.
Following are the merits:
- The time value of the money is a partial adjust. In this approach, the property cash flow and the net income are estimated to level they can reach upon the completion of projects, which account for time to build.
- The method is including the financing cost into analysis.
- The last merit is that this yield on cost approach is simple one.
Following are the deficiencies:
- The yield of cash flow is calculated on the basis of cost. It will be appropriate to the comparison of the value of property with the cash flow. In this way, the assumption of the analysis is that the value of the project will equal to the completion cost.
- Most of the costs like financing cost and construction cost are not adjusted according to the time when they will occur.
- This method overstates the staring cash flow yield related to the property completion.
- The systematic risk and rate of return on the equity related to the project is also not included.
- Develop a pro forma for the completed apartment complex and estimate its value at completion. Justify any additional assumptions you must make to complete your analysis.
|Gross rental income||428,400.00||429,471.00||430,544.68||431,621.04||432,700.09||433,781.84|
|Vacancy loss (2%)||-8,919.00||-8,941.30||-8,963.65||-8,986.06||-9,008.53||-9,031.05|
|Credit loss (1%)||-4,459.50||-4,470.65||-4,481.83||-4,493.03||-4,504.26||-4,515.52|
|Real estate tax||86,725.25||86,942.06||87,159.42||87,377.32||87,595.76||87,814.75|
|Common area electric||3,500.00||3,508.75||3,517.52||3,526.32||3,535.13||3,543.97|
|Common area gas||2,000.00||2,005.00||2,010.01||2,015.04||2,020.08||2,025.13|
|Common area cleaning||2,600.00||2,606.50||2,613.02||2,619.55||2,626.10||2,632.66|
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