Objective: The purpose of this assignment is to give you experience in setting up and analyzing real estate cash flow spreadsheets.  Besides this, the project demonstates your ability to integrate the lectures and readings through practical application of real estate finance principles.

Practical Use of Project:  Once you have completed this project, you can take the report with you on job interviews.  This will help you demonstrate to potential employers that you

• can set up a spreadsheet by yourself,
• can do the necessary analysis, and
• can effectively communicate the results of this analysis

Strategy for Analysis: In analyzing this case, you are expected to use the scientific method/process. This process involves defining what the problem is, discussing what possible alternatives are available to solve the problem,  what are the qualitative and quantitative criteria which you will use in choosing among the alternatives, and finally, selecting the most probable "fit" -- criteria vs. alternatives.

Executive Summary: The executive summary is a stand alone document which provides a capsulized summary of your detailed analysis.  As such it includes the problem statement, alternatives to address the problem, the criteria used to choose among the alternatives, and also the most probable solution to the problem. Your executive summary should include tables which i) summarize the salient qualitative findings with respect to the 4 properties, ii) summarize the salient quantitative findings for the 4 alternatives, and iii) summarize the results of your sensitivity analysis.  Please limit your executive summary to 8 pages.

In addition to your executive summary, you are required to do a Detailed Analysis.  The components of the detailed analysis are as follows:

Problem Statement: State what is the problem that Angus Cartwright is faced with.

Alternatives to Address the Problem: Discuss the alternatives to the problem.  Please do not copy verbatim from the case.
 

Alison Green (AG) AG is a 100 unit existing garden apartment building located in Montgomery County, MD.

900 Stony Walk (SW) SW is an existing five story, 40,000 square foot office building that is also located in Montgomery County, MD.

Ivy Terrace (IV) IV is an 80 unit apartment building that is under construction near Arlington, VA.

Fowler Building (FB) FB is a two-story, 45,000 square foot office building that is also under construction in Arlington, VA.

Criteria Used to Choose Among the Alternatives: The criteria used to address this problem involve the use of qualitative and quantitative criteria.

Qualitative Criteria:
Profile Each Investor: Please profile Martha DeRight and John DeRight in terms of their risk and return requirements.  Your profile should also include qualitative considerations such as stage in the life cycle, aversion to risk, preference for dividends vs. capital gains, etc.

Profile Each Property: Discuss the qualitative factors which have an impact on risk and return.  Be sure to discuss what are the impacts on risk and return.  One qualitative factor, for example, is the building moratorium which is in effect for Montgomery County, MD.  The consequence of the moratorium is that it constrains supply and stabilizes/increases rent in the short run.
 

Quantitative Criteria:
Discounted Cash Flow Analysis: Do the Exhibits 1-10 for each property.  You should first set up your spreadsheet and replicate the numbers for Allison Green.  Look at the risk and return measures. Compare and contrast the risk and return measures with respect to each property.  To facilitate easier readability, you should include charts and graphs.  Please use the text wrap option in conjunction with your graphs.

Backdoor-Frontdoor Solvency Analysis: Do solvency analysis on each property. Is each project solvent as the deal stands?

Sensitivity Analysis: Do sensitivity analysis on all feasible alternatives from both a static (backdoor -frontdoor) perspective and a dynamic (cash flow) perspective.  In particular, change the vacancy rate, the growth rate in rents, the growth rate in operating expenses, change the interest rate, etc. and see what the impact is on solvency (static) and key risk and return measures (dynamic).  These measures should include but not be limited to the default point, added margin, cash on cash before taxes, IRR, NPV, and also a partitioning of the IRR.  The main focus of sensitivity analysis is to see which variables have a major impact on risk and return i.e., what are the key drivers.

Most Probable Solution: Fitting the Alternatives with the Criteria Given the four alternatives available to James and Martha DeRight, discuss which property(ies) is suitable for each of them by fitting their respective investor profiles to the profile of each property.

This is an individual project.  No late projects will be accepted.  You will receive 3 scores: one for analysis, one for quantitative ability, and the third for grammar.