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Prepare a slide deck summarizing your answers for those questions and with speaker notes.All the materials you need I attahced down below Question 1Qualitatively discuss the benefits and costs of choosing Madison as the target market for the proposed luxury student-housing development.Question 2Explain the feasibility analysis provided in the case and critique it as a basis for decision-making. Your critique should include a discussion of both what is wrong with the technique, as well as what may be wrong with the assumptions within the specific application of the technique in this case.
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April 30, 2019
CRAIG FURFINE
Back to School:
Real Estate Development of Off-Campus
Student Housing
“Worth a closer look,” they said in unison. Kimberly Slater and her longtime friend,
Christopher Lenard, had just agreed to explore the possibility of developing off-campus student
housing in Madison, Wisconsin, home of the University of Wisconsin’s flagship campus. In the
summer of 2012, the demographics and market conditions both looked good. However, a more
careful analysis of the potential returns to the investment was warranted before the two friends
would be willing to invest their money.
The Partnership
Kimberly Slater met Christopher Lenard in the 1990s in the Reserve Officers’ Training Corps
program at Purdue University, where they both studied mechanical engineering while also learning
to fly fighter jets. Their years after the Air Force took them in different directions, but they kept
in touch. Slater had settled in Florida, where she worked on a team developing advanced electrooptical systems for a major national defense contractor. Like many others around her, she invested
in real estate on the side, occasionally buying small houses, refurbishing them during her spare time,
and then reselling into the booming market. With residential property prices soaring throughout
Florida during the early 2000s, Slater was able to save nearly $2 million—something she could
never have accomplished on her engineering salary alone. As a result, when the market crash came,
she saw it as an opportunity and not a crisis. Finding greater enjoyment from the hands-on work
of refurbishing real estate, she quit her engineering job and decided to take a shot at being a real
©2014, 2019 by the Kellogg School of Management at Northwestern University. This case was developed with support
from the June 2009 graduates of the Executive MBA Program (EMP-73). This case was prepared by Professor Craig
Furfine with research assistance from Eric Nyman ’13. Cases are developed solely as the basis for class discussion.
Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective
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estate developer. In 2010 real estate development opportunities were few and far between, but she
could see that with the economy in trouble, young people were going back to school. With this
insight, she bought a small property near the Gainesville campus of the University of Florida, tore
it down, and managed the development of a fifteen-unit luxury apartment building, Juniper Vista,
which was designed to be used as off-campus student housing (Exhibit 1).
Demand was strong for high-quality housing near the University of Florida campus, and so
by May 2012, the soon-to-be completed project was 100% pre-leased for a fall 2012 occupancy.
With the leases in place, Slater was able to sell the project to a local property portfolio manager at a
substantial profit. Like most real estate developers, Slater wanted to reproduce the success she had
in Gainesville. She had a great building design that could easily be adapted to most locations. She
knew how much it cost and how long it took to build. The only question remaining was where.
After leaving the Air Force, Lenard had bought a sailboat and settled in the small town of
Fontana, Wisconsin, on the shore of beautiful Lake Geneva. After working a few years as a project
management consultant for a Midwestern integrated management company, Lenard, too, became
interested in real estate. He spent several years as a real estate acquisitions analyst for a major asset
manager and began pursuing his MBA during the evenings at the Kellogg School of Management,
requiring him to commute twice weekly to downtown Chicago. By May 2012, the completion
of his MBA—with majors in finance, entrepreneurship and innovation, and real estate—was
in sight. His coursework had sparked a keen interest in trying a real estate project on his own.
For capital, he had a $500,000 inheritance received from a great-aunt a few years earlier, and he
had $250,000 in savings beyond what he thought necessary to save for his eventual retirement.
Living in Wisconsin, he had become aware of the common perception that there was a shortage
of housing that was convenient for students attending the state’s flagship campus in downtown
Madison. Moreover, the existing housing stock was largely of poor quality. Knowing about Slater’s
experience in developing student housing in Gainesville, he contacted his friend to discuss the
possibilities of being equity partners on a new development project.
The City of Madison
Slater and Lenard began their research by learning the basic facts about Madison. Madison is
the capital of Wisconsin and the county seat of Dane County. As of the 2010 census, Madison
had a population of 233,209, an increase of 12.1% since 2000. The Madison Metropolitan
Statistical Area (MSA) had a 2010 population of 568,593.1 The city had traditionally been a center
of government and education, but over the past twenty years it had seen a boom in high-tech
firms. The two largest employers in the area were still the State of Wisconsin and the University
of Wisconsin (UW). Beginning in the early 1990s, however, an aggressive technology transfer
program at UW had fostered the growth of technology startups. Companies were attracted to the
city’s highly educated work force: 48.2% of Madison’s population over the age of 25 held at least
a bachelor’s degree and 20.9% had a graduate or professional degree.2 In 2009, in the midst of a
1
2
2
U.S. Census Bureau, http://www.census.gov (accessed July 1, 2012).
City-Data.com, http://www.city-data.com/city/Madison-Wisconsin.html (accessed July 1, 2012).
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recession, Madison had an unemployment rate of only 3.5% and Forbes magazine ranked the city
number one in a list of top ten cities for job growth.3
Slater and Lenard also wanted to get a sense of the barriers faced by real estate developers. Of
particular importance to Madison was that the downtown area is located on a narrow isthmus
between two lakes (Exhibit 2). The State Capitol building is on a hill in the center of the isthmus,
surrounded by office buildings for state government and associated businesses. UW was originally
founded on a hill to the west of the capitol. UW had expanded westward along the shore of Lake
Mendota. The lakes were natural barriers to development, reducing the amount of available land
in the downtown area. Nevertheless, nearly 80,000 adults lived within three miles of campus
(Exhibit 3).
Current Housing Options
Slater and Lenard then wanted to know whether the population of students could be expected
to generate persistent high demand for off-campus housing. Lenard knew just the right person to
speak with. At the previous summer’s Geneva Lake Sailing School’s Dinghyfest Regatta, Lenard
had met Matthias Yamato. Yamato was not only another sailing enthusiast but also the assistant
director of campus housing at UW, with a wealth of information on the UW student body and
its housing options. From Yamato, Slater and Lenard learned that student enrollment at UW had
been highly stable for nearly a decade (Exhibit 4). Of the approximately 42,000 undergraduate and
graduate students, however, UW housed only 6,828 on campus during the 2011–12 school year.
This total included about 88% of the freshmen class, with 80% of the on-campus residents being
either freshmen or transfer students.4 UW had recently constructed two new residence halls, Smith
Hall (2006) and Ogg Hall (2008), and was expanding Lakeshore Hall (to be completed in 2013).
The resulting on-campus capacity would grow to accommodate approximately 7,500 students and
no additional construction was planned.5 This meant that the vast majority of students, and even
some freshmen, resided off campus and would continue to do so for the foreseeable future.
Some of the university’s need for additional housing was met by private properties that operated
like on-campus residence halls. The UW-Madison Private Housing Connections (PHC) program
was developed in the fall of 2009 in a partnership between UW and five participating private
properties. Some were newly constructed, while others were existing properties that were brought
into the PHC program. These properties rented entire apartment units or provided roommate
placement services. They also provided amenities normally found in on-campus housing, such
as community rooms, programs designed to foster socialization, resident assistants, and in some
cases, meals.
The overwhelming majority of students were housed in traditional apartment buildings, in
which no student services were provided, or in hundreds of vintage single-family–style homes
3
4
5
“In Pictures: 10 Cities Where They’re Hiring,” Forbes, January 5, 2009, http://www.forbes.com/2009/01/05/citiesjobs-employment-leadership-careers-cx_tw_0105cities_slide.html.
Karen Herzog, “UW Sets Sights on Campus Housing,” Milwaukee Journal-Sentinel, September 24, 2011.
UW System Physical Development Plan, 2011–2017.
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that were approximately eighty to one hundred years old and had been divided into apartments
(rented on a per-unit basis) or rented in their entirety to groups of students (on a per-room basis)
(Exhibit 5). Thus, student demand played an important role in the near-campus rental market,
which contained approximately 26,000 rental units.6
Market Data
It was easy for Yamato to share with Lenard information on the rental cost of the two
university-affiliated student housing options. On-campus housing costs—inclusive of mandatory
fees but exclusive of optional meal plans—varied across dormitories and room types. Exhibit 6
details the high and low end of the pricing scale. Because on-campus housing was only provided
during the academic year, Slater and Lenard calculated the equivalent monthly rate.7 The “double”
rate was for a basic bedroom shared by two persons with a communal bathroom for the entire
floor. Students had the option to pay more for a single-occupancy room, and rooms with private
bathrooms were more expensive. Some of the newer residence halls had additional charges. The
most expensive on-campus room was a single with a private bathroom in Smith Hall. Rental
costs in the PHC program were more varied because of wider variances in room size, quality, and
amenities offered.
Yamato was forthright in admitting when there was something he did not know. When Lenard
asked about off-campus options, Yamato quickly referred him to Grace Peters at the Campus
Area Housing Listing Service (CAHLS). Peters provided Lenard with average rents in the nearby
community. Beyond that, she directed Lenard to the CAHLS website, where a wealth of current
and historical information about off-campus housing choices was available.8
A more detailed analysis was possible with the unit-specific information available. For example,
Slater and Lenard understood that rental averages were not sufficient to predict what rent they
could hope to receive. For the proposed luxury student apartment complex they had in mind,
they expected to charge among the highest rents in the market. Using the prices advertised on
the CAHLS website, Slater and Lenard calculated a distribution of asking rents for the 2011–12
school year (Exhibit 7). The website had listings for 1,636 units, so it seemed like a reasonable
proxy for prices throughout the campus area. One limitation was that the data were asking prices,
not contracted prices, which may have been lower. Another limitation was that the data provided
by the service did not indicate what utilities were included in the rent and whether parking was
available and/or included. These variables could substantially affect the value of the apartment.
The rental listing service also provided limited historical information on rents in the market
(Exhibit 8). Rents in the area had been growing between 2.5% and 5% over the past several years.
To look at the market for off-campus student housing more finely, Slater and Lenard looked
more closely at housing options in the five zip codes closest to campus. Although not every off6
7
8
4
There were 26,113 rental units in the five zip codes surrounding the UW campus as of March 2012, according to
Madison Gas and Electric utility data.
Annual fee divided by 12.
Campus Area Housing Listing Service, http://housing.civc.wisc.edu (accessed July 1, 2012).
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campus student lived in one of these zip codes, it seemed reasonable to assume that a majority of
students, especially undergraduates, wanted to be able to walk or bike to campus. Therefore, taken in
aggregate, the data on multifamily housing in these zip codes was indicative of the student housing
market in downtown Madison. Peters referred them to Brock Morga, the community research
liaison for Madison Gas and Electric. The local utility company had devised a methodology that
allowed one to measure the vacancy rates within any subset of its service area.9 It was immediately
apparent that these areas had extremely low vacancies and that the vacancy level had been trending
lower in recent years (Exhibit 9).10
Given the low vacancy in existing off-campus housing, it came as no surprise to Slater and
Lenard that there were no vacant land parcels for sale close to campus. Therefore, developing their
apartment project would require them to acquire a parcel or parcels currently occupied by older
buildings, raze them, and redevelop the site. The areas of interest were already zoned for highdensity residential property and typically were occupied by the vintage housing stock common
throughout the downtown area. Thus, of particular interest to Slater and Lenard was the price at
which the vintage homes sold.
Searching past records in the multiple listing service (MLS) used by realtors, Slater and
Lenard found 167 comparable sales of multifamily properties in an area around the UW campus
(Exhibit 10). This area contained most of the rental housing units that would appeal to UW
undergraduate students. Because the number of units and bedrooms per property varied greatly, it
was essential to make a fair comparison between them in order to analyze trends. Ideally, properties
could be compared by their cap rates11 (Exhibit 11), but because most of these properties were
owned by small, private investors, public reporting of net operating income (NOI) and/or cap rates
was spotty. Another possible means of comparison would be price per square foot, but reporting
of square footage was also unreliable, as many of the listing brokers did not report this statistic in
the MLS. Besides, Slater and Lenard knew that many properties had been renovated over the years,
and so the exact square footage might not be known. In any case, students might not care all that
much about square footage. What mattered to them most was the number of bedrooms, as this
was how student housing rents were typically quoted. Thankfully, bedroom count was accurately
reported in MLS listings and was able to be cross-checked with property tax records on the City
of Madison Assessor’s website. Thus, it was reasonably straightforward to calculate sales prices on a
per-bedroom basis (Exhibit 12).
The Proposed Project
Given Slater’s familiarity with the design, she and Lenard planned to construct something very
similar to the Juniper Vista property in Gainesville. By re-using the existing design, the developer
Madison Gas & Electric counted a rental unit as vacant if both the gas and the electric service were inactive, or if
the utilities had been transferred to the unit owner’s name.
10
The spikes in the second quarter of each year were due to unit turnover at the end of the academic year, when many
landlords temporarily transferred the utilities to their own name.
11
Cap rate, or capitalization rate, is defined as net operating income divided by sales price. It is a means of expressing
the annual income yield per dollar invested in an asset.
9
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would save money and time during the planning phase. The Madison property would consist of a
single three-story building containing forty-two bedrooms in fifteen apartment units with a total
square footage of 22,950, though only 87% of that space would be rentable. The units would
be a mix of nine two-bedroom/two-bathroom units and six four-bedroom/four-bathroom units
(Exhibit 13). The building would feature private bathrooms, open floor plans, in-unit laundry,
high ceilings, and balconies. It would be constructed using traditional wood framing and did not
have any elevators or common areas. The only notable design change for the Madison project was
to create a single, secured entrance with climate-controlled interior hallways. This change was
made because of Madison’s colder climate and its urban setting, where tenants preferred a heated
and secured entrance. Slater and Lenard did not believe these small changes would affect the
building costs, so they assumed the Madison property could be built for the same $109 per square
foot cost that Juniper Vista had. The partners further assumed hard demolition costs of $75,000,
and total soft costs were estimated at 3.25% of hard construction costs (excluding demolition).
Slater and Lenard assumed that the construction cost and timeline would be approximately
the same as those for Juniper Vista, so it was a simple matter to determine that if they could
acquire the necessary land by the end of the year, the building could be ready for occupancy in
time for the 2014–15 school year (Exhibit 14).
Back-of-the-Envelope Feasibility
To quickly check the project’s financial feasibility, Slater and Lenard quickly did a back-ofthe-envelope calculation to determine approximately how much they could spend on acquiring
the necessary land. They started by constructing a rent roll, which calculated the total income
to be collected from the proposed property, assuming that the building was already in place and
occupied (Exhibit 15). They assumed they could charge above-average rents because they were
building a luxury property. For parking, they simply estimated the rental rates from a survey of
advertised parking rents on various websites.12 Expenses were also estimated as if the building were
currently in existence. With this information, a “current” income statement was easily constructed
(Exhibit 16).
Slater and Lenard assumed that upon completion, the building would be able to support
permanent financing up to a 75% loan-to-value ratio (LTV) that required a minimum debt service
coverage ratio of 1.25. Current mortgage rates for multifamily properties were 4.625% and were
amortized over twenty-five years. From these assumptions, it was determined that they could
spend a little over $1.6 million for site acquisition and the project would still be financially feasible
(Exhibit 17).
Based on the analysis of comparable multifamily sales, the average lot size was about
5,000 square feet. The proposed development required about 14,000 square feet of land, so on
average, three existing properties would need to be acquired. Because the average sales price of
the comparable properties was $366,223, Slater and Lenard believed the required land could be
purchased for about $1.1 million, well below the $1.6 million threshold of feasibility.
12
6
It was common practice in Madison for parking spaces to be an additional rental charge at apartment buildings.
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Next Steps
Slater and Lenard were excited about the possibility of working together on a real estate
development project. Slater, having made a profit on Juniper Vista, was ready to start scouting
for land. Lenard agreed that it didn’t hurt to start looking but took a more cautious viewpoint. In
particular, he was worried that there was more to analyze than simply whether or not the project
seemed feasible. That is, just because the project could move forward did not necessarily mean
that it should. There were income-producing properties already on the land they would want to
acquire; maybe it didn’t make sense to raze them.
Lenard sat down and fired up his laptop. Thankfully, the operating system needed to install
the latest updates, which gave him plenty of time to think. Certainly, a more in-depth financial
analysis was warranted before he would invest a substantial sum of his own money into his first
real estate project.
He paused, thinking back to his real estate finance class, where his professor always cautioned,
“Skilled financial analysts can make a spreadsheet to justify anything—so think carefully about
your assumptions.” In particular, he was concerned that Slater and he had incorporated many
assumptions straight from Florida. He also realized that none of their analysis had considered the
fact that it would take time to build and that any profit on it would not be realized for a long time.
And even if the project turned out to be profitable, did that mean that it was the best thing to do
with his savings?
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Exhibit 1: Juniper Vista, Gainesville, Florida
Source: Image provided by featured organization.
8
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Exhibit 2: UW-Madison and Its Surroundings
UW-Madison
State Capitol
Central Business District
Source: Image created by case author.
Exhibit 3: Population Near the UW Campus
Population
1-mi.
3-mi.
5-mi.
2011 total adult population
33,123
79,485
156,545
2011 total daytime population
93,313
183,179
307,275
22
26
32
2011 total households
13,576
38,493
82,217
% population change 1990–2011
15.5%
3.8%
4.8%
2011 median age total population
% household change 1990–2011
27.4%
9.5%
10.1%
2011 median household income
$15,239
$31,640
$41,218
2011 average household income
$43,580
$61,873
$67,533
Source: LoopNet, http://www.loopnet.com (accessed July 1, 2012).
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Exhibit 4: Student Population
45000
40000
35000
Campus Total
30000
Undergrad Total
25000
Senior
20000
15000
Junior
10000
Sophomore
5000
Freshmen
0
Source: University of Wisconsin Enrollment Report, Fall Semester 2011–2012.
Exhibit 5: Typical Off-Campus Housing Choices
S m a ll A p ar t me n t B uild i ng
Conve r t e d Vin t a ge H o me s
Source: Images provided by case author.
10
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Exhibit 6: Current Student Housing Choices and Prices
U ni ve r si t y- A f f ili at e d H ou sing F e e s
O n – C a m pu s R e s i de n ce H a l l s
Room Type
Annual Fee
($)
Equivalent Monthly Rate
($)
Double
6,779.00
564.92
Double with bath
7,538.00
628.17
Single
7,569.00
630.75
Single with bath
7,785.00
648.75
Smith Hall single
8,358.00
696.50
Smith Hall single with bath
8,552.00
712.67
U W- M a d i s o n Pr i va t e H o u s i ng C o n n e c t i o n s ( P H C ) Pr ogr a m
Room Type
Lucky 101
Regent 101
PH Apartments
Statesider
The Towers on State
Fee ($)
Monthly Per-Bed Rate ($)
Double
7,650.00/year
637.50
Single
12,150.00/year
1,012.50
Premium Single
15,300.00/year
1,275.00
Double
5,085.00/year
423.75
Single
7,479.00/year
623.25
Premium Single
8,352.00/year
696.00
1 Bedroom (1 person/bedroom)
1,375.00/month
1,375.00
2 Bedroom (1 person/bedroom)
2,380.00/month
1,190.00
3 Bedroom (1 person/bedroom)
2,550.00/month
850.00
4 Bedroom (1 person/bedroom)
2,860.00/month
715.00
5 Bedroom (1 person/bedroom)
4,210.00/month
842.00
Standard Room (2 people/bedroom)
1,195.00/month
597.50
Deluxe Quad (2 people/bedroom)
1,395.00/month
697.50
Premium Suite (2 people/bedroom)
1,495.00/month
747.50
Executive Suite (2 people/bedroom)
1,695.00/month
847.50
Presidential Suite (2 people/bedroom)
1,895.00/month
947.50
850.00/month
850.00
2 Bed/1 Bath (1 person/bedroom)
1,650.00/month
825.00
2 Bed/2 Bath (1 person/bedroom)
1,900.00/month
950.00
Efficiency
Source: UW Division of University Housing, Projected 2012–13 Academic Year Rate.
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Exhibit 6 (continued)
Ave r a ge O f f- C a m pu s H ou sing Re n t s
Range
($)
Average Monthly Rent
($)
Average Monthly Per-Bed Rate
($)
Efficiency/Studio
368–1,125
611
611.00
1 Bedroom
535–1,425
764
764.00
2 Bedrooms
635–2,345
1,127
563.50
3 Bedrooms
850–2,810
1,570
523.33
4 Bedrooms
1,150–3,720
2,082
520.50
Room Type
Source: Campus Area Housing Listing Service, http://housing.civc.wisc.edu (accessed July 1, 2012).
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Exhibit 7: Rental Rates for Off-Campus Housing
2 Bedroom
1 Bedroom
20.00%
20.00%
0
20
0.00%
200 400 600 800 1000 1200 1400
0.00%
Asking Rent
Asking Rent
4 Bedroom
120.00%
50
100.00%
40
80.00%
30
60.00%
20
40.00%
10
20.00%
0
0.00%
800
1000
1200
1400
1600
1800
2000
2200
2400
2600
2800
3000
60
Frequency
3 Bedroom
Frequency
2400
40
More
20
2200
40.00%
40.00%
2000
60
1800
60.00%
40
60.00%
1600
80.00%
60
1400
80
1200
100.00%
800
100.00%
80.00%
80
0
120.00%
100
1000
100
120
600
Frequency
120
120.00%
Frequency
140
35
30
25
20
15
10
5
0
120.00%
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%
Asking Rent
Asking Rent
Source: UW Housing Office, compiled from asking rents for apartments advertised on CAHLS website.
Exhibit 8: Rent Levels and Their Recent Growth
6.00%
2500
5.00%
2000
4 Br
1500
3 Br
4.00%
1000
2 Br
3.00%
1 Br
2.00%
Studio
1.00%
500
0
2007
2008
2009
2010
2011
2012
Average Rent
0.00%
1 Br
2 Br
3 Br
4 Br
Studio
Compounded Annual Growth Rate, 2008–2011
Note: 2009 data unavailable.
Source: UW Housing Office, compiled from asking rents for apartments advertised on CAHLS website.
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Exhibit 9: Vacancy Rates in Near-Campus Zip Codes
12.00
10.00
8.00
Capitol (53703)
Far West (53705)
6.00
Far South (53711)
Near South (53715)
4.00
Near West (53726)
2.00
0.00
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Source: Compiled from Madison Gas and Electric company utility connections data.
Exhibit 10: Near-Campus Sales Prices
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$0
2005
2006
2007
2008
2009
2010
2011
2012
Source: Multiple listing service.
14
Kellogg School of Management
This document is authorized for use only by Huangzhong Li in Products and Emerging Trends taught by Seydina Fall, Johns Hopkins University from Sep 2023 to Mar 2024.
For the exclusive use of H. Li, 2023.
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Exhibit 11: Near-Campus Cap Rates
9.00%
8.00%
7.00%
6.00%
5.00%
Campus Area
4.00%
Greater Madison
3.00%
2.00%
1.00%
0.00%
2007
2008
2009
2010
2011
2012
2013
Source: MLS records, LoopNet.com, and Real Capital Analytics (accessed July 1, 2012), and author calculations.
Exhibit 12: Near-Campus Sales Prices Per Bedroom
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$0
2005
2006
2007
2008
2009
2010
2011
2012
Source: MLS records, LoopNet.com, and Real Capital Analytics (accessed July 1, 2012), and author calculations.
Kellogg School of Management
15
This document is authorized for use only by Huangzhong Li in Products and Emerging Trends taught by Seydina Fall, Johns Hopkins University from Sep 2023 to Mar 2024.
For the exclusive use of H. Li, 2023.
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KEL854
Exhibit 13: Apartment Floor Plans
Two – B e dro o m L ayou t
F our- B e dro o m L ayou t
Source: Images provided by featured organization.
16
Kellogg School of Management
This document is authorized for use only by Huangzhong Li in Products and Emerging Trends taught by Seydina Fall, Johns Hopkins University from Sep 2023 to Mar 2024.
For the exclusive use of H. Li, 2023.
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KEL854
Exhibit 14: Project Timeline
Date
Hard
Construction
Construction
Loan Payoff
Completed Asset
Value
8/31/2013
9/30/2013
8/31/2014
8/31/2014
$75,000
$2,501,550
Land Acquisition
Demolition
12/31/2012
??
Estimated Cost
??
Timing Assumptions: Hard construction costs are financed with a construction loan.The first draw occurs to pay for the demolition, with
twelve subsequent draws assumed to be evenly spread over twelve months (from September 2013 through August 2014) to cover the
remaining hard construction costs. Soft costs, equal to 3.25% of hard construction costs (excluding demolition), are assumed to be
evenly spread over the entire twenty months.
Exhibit 15: “Current” Rent Roll
# of Units
Bedrooms
Sq Ft
Rent/Mo
($)
Rent/Year
($)
Rent/Mo/Room
($)
9
18
1,150
1,800.00
21,600.00
900.00
Apartments
Unit Style
2 Br/2 Ba
4 Br/4 Ba
6
24
1,600
3,250.00
39,000.00
812.50
Total
15
42
19,950
35,700.00
428,400.00
850.00
Parking Spaces
15
97.50
1,170.00
Total
15
1,462.50
17,550.00
Kellogg School of Management
17
This document is authorized for use only by Huangzhong Li in Products and Emerging Trends taught by Seydina Fall, Johns Hopkins University from Sep 2023 to Mar 2024.
For the exclusive use of H. Li, 2023.
Back to School
KEL854
Exhibit 16: “Current” Income Statement
($)
Revenue
Gross rental income
428,400.00
Parking income
17,550.00
Vacancy loss (2%)
(8,919.00)
Credit loss (1%)
(4,459.50)
Total income
432,571.50
Expenses
Real estate tax
86,725.25
Common area electric
3,500.00
Common area gas
2,000.00
Common area cleaning
2,600.00
Security system
860.00
Landscaping maintenance
1,800.00
Landscaping irrigation
696.99
Exterminating
600.00
Snow removal
3,000.00
Garbage service
2,400.00
HVAC service contract
2,100.00
General maintenance
3,000.00
Unit turnover cleaning
7,500.00
Insurance
10,000.00
Management fee
34,605.72
Total expenses
161,387.96
Net operating income
271,183.54
Exhibit 17:
