Task1. A real estate developer and operator plan to develop a new high-rise office building in North Dallas. Comparable buildings last 60 years, however the developer plans to sell it after 20 years for 40% of the construction cost. For the first 20 years it can be leased as Class A office space. When the building is sold, then the land's cost will be recovered in full (land value is approximate to go up 3% per year). Here are the estimated costs: $22M Land $41M Building (500,000 square foot) $6.4M Annual maintenance and operating – paid at the end of year 4% Annual property tax and insurance (% of initial investment) – paid at the end of each year

(a) If the company desires a 12% rate of return, what is required annual leasing income for the whole building? Use the technique of annual cash flow and then the technique of NPW to find the solution.

(b) Supposing an anticipated average occupancy rate of 90% (that is, on average 10% of the building are vacant at all times), what is minimum leasing price per square foot and year? Is this a reasonable price?