Property Investment and Risk Management

Running head: PROPERTY INVESTMENT AND RISK MANAGEMENT
Property Investment and Risk Management
Name of the Student:
Name of the University:
Authors Note:

PROPERTY INVESTMENT AND RISK MANAGEMENT
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Contents
Part 1: Introduction:.........................................................................................................................2
Part 2: Investment analysis:.............................................................................................................6
Projection of discounting cash flow:...........................................................................................6
Calculation of Internal rate of return (IRR) and net present value (NPV):...............................18
Part 3: Impact of leverage, risk and taxation on investment analysis:...........................................25
Part 4: Conclusion:........................................................................................................................26
References:....................................................................................................................................27

PROPERTY INVESTMENT AND RISK MANAGEMENT
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Part 1: Introduction:
11 Stanton Road, Seven Hills, New South Wales 2147 property has a net floor area of 12,294
square meter and it was last sold in 2011 for $4,350,000. The property is an extremely attractive
property from the point of view tenants due to the attractive location of the property. The Seven
Hills area is an industrial area and since the property is located in there the demand for the
property is quite high with number of companies looking rent the property to use it as their front
offices. It has been assumed that the current owner of the property decided to rent the property to
two different tenants. In order to assess the desirability of renting the property to the tenants a
detailed calculative analysis is conducted here to calculate the net present value (NPV) and
internal rate of return of the property (Essential guide for European property business, 2015).
The following data about the property and rent agreement of the property at 11 Stanton Road,
Seven Hills, New South Wales 2147 have been accumulated along with certain assumptions to
calculate the discounted cash flows from the property over the next 10 years on the basis of
which NPV and IRR of the property shall be calculated in this document (Drejer, 2018).
Inputs to calculate projected discounted cash flows
Name of the property: 11 Stanton Road, Seven Hills
Address of the property: 11 Stanton Road, Seven Hills, New South Wales
2147
NSW 2147

PROPERTY INVESTMENT AND RISK MANAGEMENT
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Type of property: Multi-tenant Office Bldg.
Total Building Area (Sq.Ft.): 12,294
Date of rent period starting: 01.01.2019
Number of years for the analysis 10
Rate of general inflation 4%
Vacancy rate 0%
Loss of credit / collection 0%
Expenses reimbursed
Common Area Maintenance $1.75 per sq.ft./yr.
Ad Valorem Tax $2,750 per yr.
Property Insurance $0.65 per sq.ft./yr.
Utilities $1.80 per sq.ft./yr.
Expense incurred on Administrative purpose $0.20 per sq.ft./yr.
Expenses not to be reimbursed
Management fee 2% of Annual gross rent

PROPERTY INVESTMENT AND RISK MANAGEMENT
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Assumptions for Market Leasing
Market Rent $50.00 per sq.ft./yr.
Months Vacant (between tenants if the
tenant vacates before expiry of tenancy
agreement)
3 Months
Tenant Improvement Allowance $1.50 per sq.ft.
Term Length 10 Years
Resale Assumptions:
Terminal Cap Rate 10%
Resale Adjustment (Commission) 2%
Valuation Assumptions:
Appropriate rate of discount 10.00%
Tenancy agreements information

PROPERTY INVESTMENT AND RISK MANAGEMENT
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Tenan
t 1
Tenant 2
Tenant Name John
Willis
Charles Atkinson
Rental Rate/Sq.Ft. $50.00 $50.00
Occupied Area in Sq.Ft. (tenants) 7,000 5,294
Beginning term 01-01-
19
01-01-19
Term in Years 10 10
Tenancy agreements information
Tenant 1 Tenant 2
Tenant Name John Willis Charles Atkinson
Rental Rate/Sq.Ft. $50.00 $50.00
Occupied Area in Sq.Ft. (tenants) 7,000 5,294