Shady Trail
Shady Trail Case Study
Executive Summary
After analyzing the numbers and the market and property factors involved with Shady Trail, it is my opinion that this property is a reasonable one to invest in. It meets the criteria we had previously set forth in choosing an investment property as both the IRR and the current cash flows are in excess of the minimum we mandated. These numbers require that the assumptions we use in market rent, cap rate in 2003, vacancy rate, and our plans to sell the investment after 5 years all hold. If one of these assumptions doesn’t hold and the 5-year projection is below expectations, it can still be remedied by holding the asset for a longer time period.
Assumptions/Issues
The principal issue in the completed analysis is the extent to which the assumptions are accurate. To make a recommendation based on the financial information provided, it is necessary that the assumptions used are held. Namely, the difference between the assumed vacancy rate of 5% and the average industrial vacancy rates of 6-7% would fundamentally change my recommendation, as the financial analysis of these two scenarios will show in the report. Additionally, there is also a difference in holding the property for 5 years versus holding it for 10 years, and it is worthwhile to explore these two circumstances in conjunction with the differing vacancy rates to assess the best course of action to take with Shady Trail.
The property itself is in line with what we are looking to invest in. Since there will only be two tenants, the building can conveniently be divided amongst them. A potential drawback of limited truck turnaround space is also eliminated since no more than two tenants will be occupying the space, and easy access to the Freeway system is a positive factor as well since it will draw future potential tenants.
Although I’ve assumed a 5% vacancy rate for this building, I will also adjust this figure to 7% as per the average vacancy rate in
Executive Summary
After analyzing the numbers and the market and property factors involved with Shady Trail, it is my opinion that this property is a reasonable one to invest in. It meets the criteria we had previously set forth in choosing an investment property as both the IRR and the current cash flows are in excess of the minimum we mandated. These numbers require that the assumptions we use in market rent, cap rate in 2003, vacancy rate, and our plans to sell the investment after 5 years all hold. If one of these assumptions doesn’t hold and the 5-year projection is below expectations, it can still be remedied by holding the asset for a longer time period.
Assumptions/Issues
The principal issue in the completed analysis is the extent to which the assumptions are accurate. To make a recommendation based on the financial information provided, it is necessary that the assumptions used are held. Namely, the difference between the assumed vacancy rate of 5% and the average industrial vacancy rates of 6-7% would fundamentally change my recommendation, as the financial analysis of these two scenarios will show in the report. Additionally, there is also a difference in holding the property for 5 years versus holding it for 10 years, and it is worthwhile to explore these two circumstances in conjunction with the differing vacancy rates to assess the best course of action to take with Shady Trail.
The property itself is in line with what we are looking to invest in. Since there will only be two tenants, the building can conveniently be divided amongst them. A potential drawback of limited truck turnaround space is also eliminated since no more than two tenants will be occupying the space, and easy access to the Freeway system is a positive factor as well since it will draw future potential tenants.
Although I’ve assumed a 5% vacancy rate for this building, I will also adjust this figure to 7% as per the average vacancy rate in