Warehouse Development Assignment! Need Help!

[Alex Meushaw]

You are offered the opportunity to develop a 400,000 SF warehouse facility for General Foods in suburban Baltimore. Attracted by your expertise as a local warehouse developer, General Foods has offered to sign a triple net lease for seven years at a rent for $2 million per year. They also insist that at the end of the lease term they have the option to purchase the property at $22 million. Their final major condition is that the project be completed and ready for occupancy in 11 months. If it is not complete by that time the deal is void.

You estimate that the property will cost $ 20 million to complete (including all costs) and that you should be able to complete it within then months if you commence construction immediately. You believe that you can obtain a construction cost guarantee that should guarantee costs will not exceed 20.5 million. You believe that you will be able to obtain a $14 million to $15 million, seven year, 25-year amortization loan, at a fixed interest rate of 8%, and a 50 basis point fee. You believe that you can close this loan in six to eight weeks from now.

You believe that your company can access approximately $8 million in equity. Your company will receive a development fee of roughly 3% of project costs ( this cost is included in your $20 million cost estimate)

(MARKET)-Finally vacancy rates in the market are approximately 4%, gross rents in the market run $7-9 PSF, with operating expenses and taxes running $2-$4PSF. Negotiations are over and it is time to make a decision.

1. Set up all cash flows, including NOI

2. Compare the expected cash flow from this project to one in the market

3. Describe possible risks of this proposal

Should you agree to develop the property?

(by the way) this paper does not have to be long. I just need to write about 2 pages including cash flow and NOI...I have a huge problem setting this up and cant afford to screw up. My professor gave us a template to use but I believe she just copied and pasted from google because its not working correctly!