Argus Project Shoemaker

ARGUS Project: Investing in a Trophy Office Building Jessica Shoemaker November 18, 2009 Section I: Additional Assumptions Miscellaneous Revenues: Parking Given: • 2 parking spaces/1,000 SF of net rentable area included in each lease • Total leased area: 460,823 SF Assumed: • Total parking spaces currently leased: 460,823/1,000=460.823 → 460.823*2= 921 leased • Total parking spaces: (536,000/1,000)*2= 1,072 total • Spaces not leased: 1,072-921= 151 spaces • Additional parking revenue: 151 spaces * $100/space/month= $15,100 additional revenue per year ➢ 0% fixed as it is based on the occupancy of the building and not a fixed amount Reimbursable Expenses: Insurance / CAM / Real Estate Taxes Since we do not have access to historical operating statements to determine the appropriate amount per square foot for insurance, CAM and real estate taxes, I decided not to break out these expenses as separate line items. Assumed: $6.78/SF • Used the expenses in Schedule E to determine appropriate level of reimbursable expenses per square foot: ➢ Converted the expenses/gross SF → expenses/net SF by multiplying by 1.22015, which is the ratio of the Subject Property’s gross to net square footage. ➢ After converting the expenses of each comparable to net SF, I calculated the average of all the expenses ($6.99/SF). I then reduced this number by 3% to remove the management fee, which is already its own line item. The new amount equals $6.78/net SF. Tenants: Vacant Tenants • Assuming one new tenant signed per year for the next three years. This assumption is based on the Schedule F absorption data for the CBD submarket: ➢ 120,000 SF absorption / 8,125,000 total submarket SF = 1.5% absorption per quarter. ➢ 1.5% absorption * 4 quarters = 6% absorption per year. ➢ 536,000 net rentable SF * .06= 32,160 SF absorbed/year • Assuming all new tenants signed will be credit tenants Market Leasing Assumptions: Credit Tenant, New Market • New market rate: $32.03/net SF

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➢ Converted the gross SF market rental rates for credit tenants in Schedule C to net SF rental rates by multiplying by 1.22015 ➢ Averaged the net SF market rental rates for credit tenants, which equals $32.03/SF Term length of 10 years

Credit Tenant, Renewal Market • Renewal rate: $28.82 ➢ Tenants are sometimes offered a 10% discount off the market rate to entice them to stay. 90% of $32.03= $28.82/SF • Term length of 10 years Non-Credit Tenant, New Market • New market rate: $37.01/SF • Converted the gross SF market rental rates for non-credit tenants in Schedule C to net SF rental rates by multiplying by 1.22015 • Term length of 10 years Non-Credit Tenant, Renewal Market • Renewal rate: $33.30/SF ➢ Tenants are sometimes offered a 10% discount off the market rate to entice them to stay. 90% of $37.01= $33.30 • Term length of 10 years

Section II: Answers to Questions 1) Estimate the highest price you can bid for this Class A trophy office building in the CBD district. Purchase Price: • Year 1 NOI / Typical market cap rate → ➢ Cap rate determined using Schedule E • $6,449,583 / .09 = $71,662,033 Resale Price: • 8% cap rate • Capitalize net operating income 1) What is your unlevered and levered IRR at this price? • Unlevered IRR: 17.51% • Levered IRR: 34.16% 1) What is the total equity investment required to carry the project to year 7? $55,272,604 • Discounted each year’s “Total Uses of Capital” line item in the Schedule of Sources & Uses of Capital by 12%. • Subtracted 75% of Property Purchase Price from Year 1

1) Suppose your bank is willing to refinance the property if LTV drops below 67%. Estimate the year that this will occur. According to the Individual Loan & Debt Service Summary report, the loan to purchase price ratio will not drop below 67% at any point during the analysis.