MBA Real Estate Finance team Project, along with Financials and Monte Carlo analysis using Oracle Crystal Ball Software

1. 70 Franklin Street70 Franklin Street
FIN G217 – REAL ESTATE FINANCE AND INVESTMENTS
Matt O’Hearn
Adam Cohen
Rudolph Parker
Joshua Pierce
December 3, 2007

2. AgendaAgenda
-Boston Economy
-Building Overview
-Investment Strategy
-Investment Opportunities and Risks
-Market Overview and Comparable Properties
-Tenant Profiles
- Financial Analysis and Underwriting Assumptions
- Conclusion and Recommendation

3. Boston EconomyBoston Economy
•Boston economy is in the midst of a comeback
•Employment growth (job creation & payrolls) is expanding
Negative Job Growth Positive Job Growth
2002 -2.2% 2005 +0.8%
2003 -2.2% 2006 +1.5
2004 -.02% 2007 +1.6 (YTD)
•In Boston, as of August 2007:
Job growth for professional and business services = 2.8% annualized
•Nationally, as of August 2007:
Job growth for all industries = less than 1% annualized
Source: Moody’s Economy.com

4. Boston Economy, ContBoston Economy, Cont
Monster.com’s Employment Index for Boston for 2006
The national leader in demand for high paying employees
Demand for employees by employers
+20% from October 2006 to October 2007
•Expansion of the Boston economy
•Demand is high, Vacancy (supply) is low
•Puts upward pressure on rents and availability

5. 70 Franklin Street70 Franklin Street

6. 70 Franklin Street70 Franklin Street
•Class B property
•Between the Financial District and
Downtown Crossing
•On a 12,258 square foot lot
•84,400 square feet of office and
retail space on 9 floors
•Optimum space for most small or
mid-sized businesses
•Offers 4 store front locations for
retail services

7. 70 Franklin Street, Cont70 Franklin Street, Cont
 Part of an exclusive group known as “jewel box” buildings
 A unique architectural style and were built in the late 1800’s
 This exclusive group includes buildings such as:
 84 State Street, One Liberty Square, and 45 Milk Street
 Tenants are attracted to the attractive look of “jewel box” buildings
 Design offers a more “boutique-like” feel for its tenants
 No designated parking
 Location proves favorable to retailers
– Positioned between the financial district and the Downtown Crossing shopping
district
– As well as on routes for major public transportation centers
 Downtown Crossing and Park Street T

8. Investment StrategyInvestment Strategy
 Add value through leaseup of currently vacant space at market rates
 Projected to take 12-24 months
 Leasing Goals
– Lease vacant office space on 2nd
, 4th
and 5th
floors totaling 33,878
sf (40% of GLA) at market rates of $33
– Lease vacant retail space totaling 2,189 sf at $50
– Renew Rasky Bearlin (11,425 sf) at market rate prior to Dec.
2008 lease expiration
 Upon stabilization, assess market conditions for opportunistic sale
or long term hold

9. Positive Considerations/UpsidePositive Considerations/Upside
OpportunitiesOpportunities
 Below Market Rents
– Average in-place rent is $26.50 vs. most recent lease at $33.50 – a 20%
differential
 Leaseup of Vacant Space
– Currently 51% leased, with little comparable vacancy in the Financial
District
 Leaseup/Upgrade Retail Tenancy
– Finagle-A-Bagel and Papyrus both strong local draws
– Potential to upgrade FFCU to national tenant – BoA, Citi, Citizen’s
 Location
– Highly desirable to small to mid-size service providers (PR, law/accounting
firms, government agencies) requiring close proximity to downtown clients

10. Investment Issues/RisksInvestment Issues/Risks
 Increasing Uncertainty
– Tenant caution leads to slower than expected leaseup of vacant space
– Cautious underwriting and low vacancy in submarket offset this risk
 Upcoming Rollover
– Rasky Baerlin is largest tenant, expires in Dec. 2008
– Single 5 year option at market rates
– Proactively work with tenant to secure extension ahead of expiration
 Capital Market Factors
– Significant pullback in financing, particularly for riskier/value-add properties
– Reduced competition in bidding process, could reduce buyer pool upon exit
– Plan to stabilize asset prior to exit will broaden buyer pool at exit

11. Market OverviewMarket Overview
Boston’s Financial District consists of 34 million square feet of Class A and Class B office space.
At the end of the second quarter 2007, the Boston Office market had a vacancy rate of 11.0%.
Rental rates ended the second quarter at $23.66, an increase over the previous quarter.

12. Market OverviewMarket Overview
In the first three months of 2007, 49 office sales transactions with a total volume of $1,360,564,976.
The price per square foot averaged $230.30.
2007 Cap rates averaging 7.57%

13. Tenant ProfilesTenant Profiles
 PAPYRUS
 SQUARE FEET: 900 SF
 LED: July 2010
 FILENE FEDERAL CREDIT UNION
 SQUARE FEET: 2,229 SF
 LED: June 2011
 FINAGLE A BAGEL
 SQUARE FEET: 2,582 SF
 LED: July 2011
 RASKY BAERLEIN
 SQUARE FEET: 11,425 SF
 LED: December 2008
 COMMONWEALTH OF MASSACHUSETTS
 DIVISION OF CAPITAL ASSET MANAGEMENT
 SQUARE FEET: 10,047 SF
 LED: May 2010
 ADVENT SOFTWARE
 SQUARE FEET: 8,061 SF
 LED: September 2010
 HARTFORD STEAM BOILER INSPECTION AND
INSURANCE CO.
 SQUARE FEET: 8,061 SF
 LED: January 2016

14. Assumptions*
•Cost Price $15,000,000 ($177/sf)
•$5,000,000 Equity, WACC @ 10 %
•$10,000,000 Debt @ 6% for 30 Yrs
•Debt Balance of $8,332,764 @ Year 10
•$32 $/SFT
•Used broker basic assumptions from Year 1 (Occupancy 90%)
•Revenue growth rate of 3%
•Expenses as given – Incl Cleaning, repairs & maintenance, utilities, insurance,
administrative, management fees
•Depreciation only $150,000 per annum (1%)
•But Tennant improvements averaged at $304,424 per annum (2%)
•PV of Cash flows $6,282,708
•NPV = $1,282,708, IRR 13%
* See Spreadsheet

15. Monte Carlo Simulation

16. Questions ?Questions ?