Real estate investing, case in point model part one, deal terms. First, let's take a quick look at the model and see what we have.

We have a page with our terms that will establish the deal, which include the purchase price which we'll calculate as well as some financing terms. And this is what we will be filling in first. In order to do that, we're going to need to take a look at the building itself and see what the asset is and what some of the operating conditions are, including the tenant and lease type. And we have that on the operating assumptions tab. We will then, in later sessions, do the calculations where we'll just break down the pro rata calculations as well as the rental revenues and operating expenditures and finally build the cash flow statement. In terms of the building itself, we have a building that has, for demonstration purposes, three different leases, a triple net lease, a single net lease, and a full service gross lease. And this will enable us to look at how those three situations translate into expenditure reimbursements or not. The total square footage of the building is 500,000 with a 96% net leaseable area. So the first thing we need to do is calculate what that is in square footage. Once we have that, we can go back to the deal terms page and calculate the purchase price. The net leaseable area in square footage we will take from our operating assumptions page. The purchase price is $750 per square foot of net leaseable area, so we will calculate the purchase price based on that. Now, the purchase price and the remainder of the model will be in thousands. So what we have to do here is we actually have to divide this by a thousand to get an appropriate figure for the denominations of our models. So I will divide by a thousand and get the purchase price of 360 million for this asset. In terms of the implied going in cap rate, we're going to need to calculate the forward net operating income before we can do that. Obviously this is a situation where we're taking a market price and using that to assess the building value as opposed to a cap rate or an implied cap rate. We could have taken a market cap rate and done it that way, but instead we took a metric based on price per square feet. And what we're going to do now is once we have the forward net operating income calculated and implied going in cap rate just to see where the deal lies. Let's go further down and take a look at some of the terms for our sources and uses. First we have an assumption for closing costs, which will be part of the calculation of the cost to acquire the building. We have an acquisition date, which is end of year of 2020 and we have some information about the sale of the building, which we'll come to when we deal with that toward the end of the case in point. The financing is going to be split between a loan and mezzanine. And we have some information on this, which again, we will come back to when we cover the debt. But in terms of our sources and uses, we will need to incorporate some of that financing information into the sources of financing for this asset. The purchase price we'll be able to get from above, and that's the 360 million. This is obviously quite a large and valuable building. Closing costs will be the purchase price times the closing cost assumption of 1%.

I will put my formulas out to the right and blow it up so we can see it a little bit more clearly. The next thing we come to are the loan fees. The loan fees are going to be calculated based on the loan amount and rather than wrap them into the loan for both the the loan and the mezzanine, I'm going to assume that we have a very strict loan-to-value ratio and I will keep them separate which means they will be picked up by the remaining investment, which is going to be the equity investment. So first thing we'll do is we'll actually go ahead and calculate the first mortgage loan then come back to the fees. The first mortgage loan is going to have a loan-to-value ratio of 60%, so that's 60% of the purchase price. The mezzanine will have a 10% loan-to-value of the purchase price. And now we can go ahead and calculate the fees, so we can see what cash we have to bring to close. The loan fees will be the first mortgage loan times the fee amount of 1.5%. The fees on the mezzanine will be 2% times the mezzanine amount of 36, and I will copy those formulas down here as well and we can see what our fees are. Typically with mezzanine fees, they might be what they call original issue discount meaning that they're kind of embedded into the loan and they accrue, so you end up paying back more at the end of the loan than you borrowed. They could also be netted from the amount to start with, but again, rather than get into those complications, I'm just going to assume that they are paid for upfront with the cash that's brought to the deal to close from the equity sponsor. And that will be calculated by taking the total uses minus the sum of the debt available. And that gives us 115,560.