Value-Add Office Investment

  • Anonymous
    # 2 years, 4 months ago

    We are exploring the route of acquiring a value add office building. We will likely not take on any debt to start. I have a few questions as it relates to the model. I’m struggling to figure out how to enter an acquisition price of x dollars but also have some sort of development piece layered in. My goal is to acquire the property for x dollars, put x dollars into cap ex per year while leasing the building up and exiting the property in year x. Could you please walk me through how this could be achieved.

    Spencer BurtonSpencer Burton
    Keymaster
    # 2 years, 4 months ago

    This is a great question; one that requires more than a simple response on this thread. So, I’m working on a written and video tutorial showing you how I would model the scenario you describe, together with a few other things to keep in mind when using the Ai1 to model value-add opportunities. I hope to have the walkthrough completed by the end of the week, if not sooner. Standby!

    Spencer BurtonSpencer Burton
    Keymaster
    # 2 years, 4 months ago

    Here you go:
    https://www.adventuresincre.com/tenth-walkthrough-office-value-add/
    Let me know if you have other questions.

    Anonymous
    # 2 years, 4 months ago

    Thank you Spencer, very helpful.

    Another question – how do you change the funding method for the construction loan from Loan 1st, Equity 2nd. I see it on the Dev-Data tab but know how to change it.

    Thanks in advance – model is one of a kind!

    Anonymous
    # 2 years, 4 months ago

    Also – we are going to have a quick close and wont be able to close with debt. Is there a way to model where you bring in construction debt month 3 and close with all cash. And still take out the construction debt in 36 months with perm debt.

    Thanks!

    Anonymous
    # 2 years, 4 months ago

    One more question – sorry to be a pain but this model is amazing and digging in and learning the functions more and more every day are bringing up more questions. How is the renewal probability calculated on the back end. Like if I have a 50% renewal probability how does that equate on the back end?

    Spencer BurtonSpencer Burton
    Keymaster
    # 2 years, 4 months ago

    The model does not currently support any other sequence but Equity 1st, Debt 2nd. I’ve included an input to change that assumption down the road, but currently no other sequence is available.

    Spencer BurtonSpencer Burton
    Keymaster
    # 2 years, 4 months ago

    There isn’t currently a way to change the funding method for construction debt. It funds once all required equity dollars have been invested, and is paid off at stabilization via the permanent debt.

    Spencer BurtonSpencer Burton
    Keymaster
    # 2 years, 4 months ago

    Sorry for the delayed response – it’s been a very busy week for me!

    The renewal probability determines how much in tenant improvements, leasing commissions, free rent, and downtime is charged to the deal. TIs, leasing commission, and free rent are paid at new lease start date based on the ratio of new/renew at the renewal probability percentage. Downtime is charged based on the probability the tenant vacates over the entire downtime period.

    You can dig into the renewal probability calcs, and all other backend calcs by showing the Calc tabs. This can been down on the Summary tab.

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