Lease vs. buy mini case 2021 (amazon) | real estate | University of Miami


1. Pick a U.S. based[1] publicly traded corporation that has a presence here or might be thinking about opening an office in this market. (AMAZON)

2. Send me an email with your choice of firm and wait for me to tell you it is okay… Only one person or group per firm, first request wins the firm

3. The firm should be big enough to be considering leasing either 107,000 s.f. of office space in Sunrise Corporate Park in Broward County or 82,500 s.f. in Wynwood. The Wynwood site does have ground floor retail, assume a firm that purchased that site would use that space as office space. Parts of the Offering Memoranda for each property are posted on the Blackboard site and you should go and look through both of them before you get much farther in your reading of this assignment. Obviously these are two very different office sites and the location and the type of building will enter into your decision.  You have to do some very careful thinking to choose a combination of firm and site: justify your choice of firm with at least three reasons, given what you see in the offering memorandum posted on Blackboard. 10 points

a. Once you find the firm, estimate its cost of debt by finding its credit rating and using the Aaa and Baa bond yields  from the FRED website that are in the notes for the week of April 5th.5 Points

b. Once you find the firm, get its beta from Yahoo finance.  

c. Carefully explain your assumptions for the cost of debt and each of the three components of the CAPM model. 

d. Compute the required return on equity using CAPM 10 Points

5. Estimate a loan to value ratio for a lender that would make the loan based on the credit quality of the firm you pick. Assume the loan is amortized over 30 years. Use the information on the credit market sheet from JLL. Explain your assumption. 5 Points

6. Estimate the land value of the property you have chosen to study. The Sunrise site is on 7 acres of land, the Wynwood site is on 14,625 s.f. of land. You can find comparable properties for either site by searching on line. Identify the information you used to estimate the land value and explain your assumptions on the land valuation.  10 Points 

7. You need to assume a triple net lease rate for the Sunrise site or a gross lease rate for the Wynwood site, (and then assume reimbursable expenses are $15 a foot). Use the information on lease comps in each offering memorandum to make your assumptions. Explain your logic. Do not average lease rates from the comps, use a weighted average based on similarity to the target property. Also, do not rely heavily on lease comps that are far from the subject property for either site. 5 Points

8. You need to assume an annual average appreciation rate you think is justified going forward 15 years and a risk premium that you will add to the discount rate to find the present value of the reversion cash flows. Explain your decisions on the appreciation rate and the risk premium.  Do not be overly optimistic on your appreciation rate, it is a really important assumption and you can let your optimism show in sensitivity analysis if you want to. 10 Points

9. You will also need to estimate an acquisition price for the Sunrise site if you pick that site. Use the recent sales comps in the Offering Memorandum and explain your logic. Assume the property can be purchased for $40,000,000 if you choose the Wynwood site. Also, the Wynwood Offering Memorandum has gross lease rates for the lease comps, not triple net lease rates, so assume that reimbursable expenses are $15 p.s.f. 

Complete the lease vs. buy analysis. Use the firm’s debt cost as the borrowing rate for an amortized loan. Use 21% as your tax rate in one analysis and then repeat the analysis using a 28% tax rate. You can use my spreadsheet or one of your own. This is great practice for the final. 10 Points

10.  Summarize your analysis and make a recommendation to the target firm as to whether they should lease or buy. (Put the recommendation, the key assumptions and the main points of your analysis on a nice cover page as an executive summary.) Then present the mathematical analysis, explaining your steps as you go. Cover = 10 Points

11.  You don’t have to do any sensitivity analysis unless you want to, (BIG brownie points for this though…) but you do have to comment (5 Points for the comments) on whether or not you think your decision is very unstable, or whether you are very confident in your choice, and explain why… If you choose to add the sensitivity analysis it can be on an assumption by assumption basis using goal seek, best and worst case scenarios, and a data sensitivity table or two. Explain your assumptions here. 

12. The analysis has to be printed, in presentation form, when you turn it in. Presentation counts for 20% of the grade. Of this, the writing style, (concise, impersonal, professional, etc.) is 10 Points
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