I was just reading about the Nash Building on IBJ Property Lines, and can't seem to get the math to work. The article says it is a $10MM project with 8,000sf of retail / commercial and two floors of apartments. If Pecor gets the $24 / sf in rent they are looking for out of the retail / commercial space, that is $192,000 per year in rent (we will assume no vacancy allowance, 100% recapture of expenses, and no capital reserves). I assume there will be slightly less space for apartments, given the need for hallways, lobbies, and common areas, so let's use 7,500 per floor. That is 15,000 sf at $1.30 / sf / month, which comes to $234,000 annually, again with no underwriting. So in total, the building has a potential to produce $426,000 cash flow.
If it costs $10MM, and the City is kicking in $2MM, that leaves $8MM. The debt service on $8MM at 5% with a 25 yr amortization is $567,620, or about $140,000 more than the rents generated. With $426,000 for debt service each year, they could cover about $6MM in debt. Is Pedcor putting in the other $2MM just to get to $0 cash flow?
If $10MM is the market value of the building, how did they arrive at that figure? How can a building that generates $426,000 (before any underwriting) be valued at $10MM? That is a 4.25% cap rate. I am not sure what apartments go for, but even at the height of the market in 2005 - 2007, unachored retail went for 7.5% at best.
I have to be missing something, aren't I?