118,000 SF suburban office, anchor rolling in year four
Five tenants, one vacant suite, and a 49,600 SF anchor at 42% of the building expiring in year four. The model runs that rollover the way a lease runs it: renewal odds, downtime, improvements, commissions, free rent.
Ridgemont Center is not a real property. Every property in this library is fabricated. There is no address, no listing, no broker, no lender and no transaction behind any of it. The figures are model outputs for illustration, not a valuation, an offer, or investment, legal, tax, appraisal or brokerage advice.
The assumptions
Everything below is an input. Nothing here was inferred, smoothed, or filled in from a market average.
Property and business plan
- Rentable area
- 118,000 SF
- Tenants
- 5, plus one vacant suite
- Anchor
- 49,600 SF, 42% of NRA, expiring year 4
- In-place rent
- $24.88 / SF, blended across occupied space
- Lease structure
- Modified gross, stops at $9.80 to $10.40 / SF
- Hold
- 7 years
- Asking price
- $15,340,000
Debt and exit
- Sizing
- 50% loan-to-value
- Rate
- 7.25% fixed
- Interest-only
- 1 year
- Amortization
- 30 years
- Exit cap
- 8.50% on forward NOI
What one rollover costs
The anchor holds 49,600 SF, 42% of the building, and expires in year four at $23.75 per SF against a $25.50 market. Renewal probability is 70%. The model blends both outcomes rather than picking one.
The 30% that vacates carries six months of downtime, $45 per SF of new-lease improvements, a 6% commission and six months of free rent. Weighted, that rollover costs more than a year of the anchor's rent. Year four is the deeper of the two years in the hold where levered cash flow turns negative, and unlike year one, which carries $1.0M of up-front capital items, it is entirely this.
Base-year stops are not NNN
Every lease here carries an expense stop between $9.80 and $10.40 per SF against a $10.75 per SF operating cost. Tenants reimburse only the growth above their own stop, and each stop resets at rollover.
Treating those leases as NNN would hand the landlord roughly $1.2M a year of reimbursements that no tenant owes. The distinction between a stop and a triple-net lease is worth more than most of the assumptions people argue about.
An honest office return
This model returns 8.00% levered over seven years against a 12% target. It is in the library precisely because it does not clear. Two of the three hurdles fail, a clearing price exists 12.7% below the asking price, and the arithmetic that produces that number is on this page.
Operating pro forma
Figures in thousands of dollars. Negative amounts are in parentheses, the way an operating statement writes them.
| Line | Yr 1 | Yr 2 | Yr 3 | Yr 4 | Yr 5 | Yr 6 | Yr 7 |
|---|---|---|---|---|---|---|---|
| Gross potential rent | 2,937 | 3,014 | 3,073 | 3,150 | 3,202 | 3,220 | 3,304 |
| Other income and recoveries | 80 | 115 | 129 | 70 | 75 | 85 | 126 |
| Vacancy and credit loss | (662) | (380) | (421) | (670) | (396) | (388) | (299) |
| Effective gross income | 2,355 | 2,749 | 2,781 | 2,549 | 2,881 | 2,917 | 3,131 |
| Operating expenses | (1,268) | (1,307) | (1,346) | (1,386) | (1,428) | (1,471) | (1,515) |
| Net operating income | 1,087 | 1,443 | 1,436 | 1,163 | 1,453 | 1,446 | 1,616 |
| Capital items | (1,014) | (36) | (526) | (1,278) | (452) | (374) | (42) |
| Debt service | (556) | (628) | (628) | (628) | (628) | (628) | (628) |
| Levered cash flow (final year includes the sale) | (483) | 778 | 282 | (743) | 373 | 444 | 13,060 |
| DSCR | 1.95x | 2.30x | 2.29x | 1.85x | 2.31x | 2.30x | 2.57x |
Sources and uses, and the exit
Uses at close
- Purchase price
- $15,340,000
- Acquisition costs
- $306,800
- Financing fees
- $76,700
- Total uses
- $15,723,500
Sources at close
- Senior loan
- $7,670,000
- Equity at close
- $8,053,500
- Total sources
- $15,723,500
Exit
- Forward NOI at exit
- $1,669,298
- Sale price
- $19,638,796
- Selling costs
- ($392,776)
- Loan payoff
- ($7,132,300)
- Net sale proceeds
- $12,113,721
Downside and upside
The same three cases the product runs on every deal. The downside is not a haircut on the answer, it is a full re-underwrite with the assumptions moved.
| Case | Levered IRR | Equity multiple | Year-1 DSCR | What moved |
|---|---|---|---|---|
| Downside | -2.0% | 0.88x | 1.58x | Rent growth at 40% of base, expenses growing 20% faster, exit cap 75 bps wider, vacancy 3 points higher, rate 100 bps higher. |
| Base | 8.0% | 1.61x | 1.95x | The assumptions listed on this page, unchanged. |
| Upside | 12.5% | 2.09x | 2.08x | Rent growth at 140% of base, expenses growing 10% slower, exit cap 50 bps tighter, vacancy 1 point lower, rate 25 bps lower. |
Levered IRR against price and exit cap
Rows are the exit cap rate, columns the purchase price. The centre cell is the base case on this page, so the grid checks itself.
| Exit cap | $13,806,000 | $14,573,000 | $15,340,000 | $16,107,000 | $16,874,000 |
|---|---|---|---|---|---|
| 8.00% | 12.4% | 10.8% | 9.3% | 7.9% | 6.5% |
| 8.25% | 11.7% | 10.2% | 8.6% | 7.2% | 5.8% |
| 8.50% | 11.1% | 9.5% | 8.0% | 6.5% | 5.1% |
| 8.75% | 10.5% | 8.9% | 7.4% | 5.9% | 4.4% |
| 9.00% | 9.9% | 8.3% | 6.7% | 5.2% | 3.8% |
Against these hurdles
A recommendation is only worth anything next to the targets it was measured against. These are this example's own hurdles. In the product they are yours, and you edit them.
The hurdles used here
- Target levered IRR
- 12.00%
- Minimum year-1 DSCR
- 1.30x
- Minimum equity multiple
- 1.70x
Altyst does not supply a target return. It tests the model against the numbers you set.
Reprice
- Coverage clears at 1.95x against a 1.30x minimum.
- Levered IRR of 8.00% is 400 basis points below the 12.00% target.
- Equity multiple of 1.61x misses the 1.70x minimum.
- A price of $13.39M, 12.73% below the asking price, clears all three.
What clears, and at what price
Each price below is solved by re-underwriting the whole model at that price until the constraint is met. The binding price is the lowest of the three, because a deal has to satisfy every hurdle, not the easiest one.
- Asking price
- $15,340,000
- Price for the target levered IRR
- $13,387,296
- Price for the minimum DSCR
- $23,060,559
- Price for the minimum equity multiple
- $14,845,176
- Value at the target going-in cap (8.00%)
- $13,583,904
- Binding price, the lowest of the three hurdle prices
- $13,387,296
- How the six pages in this library were classified, against the hurdles printed above and nothing else.
- Advance: all three hurdles clear at the asking price.
- IC Review: coverage and equity multiple clear, and the levered IRR misses by less than 100 basis points.
- Reprice: a hurdle fails at the asking price, and a lower price is published at which all three clear.
- Reject: no price in the search band clears every hurdle.
- In the product the same six words come from a wider test that also weighs average cash-on-cash, the downside case and a composite score. Three hurdles clearing is necessary for Advance, not sufficient, and Reject there is a downside test rather than a price search.
Checking this yourself
Every figure came from the same deterministic engine the product runs, in exact decimal arithmetic. The same inputs produce the same result every time, which is what makes a page like this worth publishing at all.
The inputs are on this page in full. Rebuild it in a spreadsheet and the lines should agree. Where a number surprises you, the line above it is usually the reason, and the calculation methodology states the convention used for every one.
Permanent link: https://altyst.ai/models/suburban-office-anchor-rollover
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