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	Case Study - Comprehensive Due Diligence Analysis for 1 Million SF Acquisition What Current Clients Are Saying Resources from Realogic Cap Rates: A Theoretical Explanation Other Tools and Resources People and Promotions at Realogic Comprehensive Due Diligence Analysis for 1 Million SF Acquisition Situation A national REIT was involved in a $200+ million transaction and needed comprehensive financial due diligence analysis in a tight two week time frame. Client Tailored Solution After reviewing the client's needs, the Realogic team arrived onsite and was responsible for: - Review and abstract all lease clauses, into Ellipsis, as determined by client - Review and abstract all service contracts - Verification of existing tenant status - Analyzing accounts receivable - Review of tax payments during the past 7 years - Migration of abstracted lease data from Ellipsis into Argus™ DCF software - Prepare/review Argus™cash flow analysis - Summarization and presentation of all results and analysis to client Impact / Results The REIT closed the transaction within the necessary time frame. In addition, all abstracted lease data was immediately available to the property management team for their lease management needs and requirements. Valuable Resource from Realogic Cap Rates: A Theoretical Explanation By: Gary Blakely, Consultant, Realogic Analytics, Inc. Use of cap rates to value real estate is a short cut based on the concept of a perpetuity, or a series of periodic cash flows that continues indefinitely. The present value of a level perpetuity, received in annual installments (pmt) can be calculated by simply dividing the annual payment by the owner's present value discount rate (r): For example, the PV of a $10 perpetuity using a 10% discount rate is $10 ÷ 10% = $100. If a perpetuity is not level, but is growing at a constant rate(g), it can also be valued using a shortcut. In the case of a growing perpetuity, this formula is: So the PV of a perpetuity whose initial payment is $10, but which grows at 3% each year (ie. $10.00, $10.30, $10.61, $10.93, etc.) using a 10% discount rate is $10 ÷ (10% - 3%) = $142.86. Real estate investors typically value office properties by applying a "cap rate" that's 1.5% to 3% less than their pre-tax cost of capital or discount rate. Based on the above, one could argue that the reason for this is at least partly because of the expectation that, on average, the income from an office building will trend upward over time, at a compound annual growth of perhaps 4% - 5%. Obviously other factors enter into the equation, including: the fact that the asset is depreciating physically; the fact that cap rates are usually "NOI cap rates" applied to Net Operating Income, before cash, T.I. and Leasing Commissions. (This is done primarily because NOI is more stable than pure cash flow); any immediate anomalies in the cash flow stream, such as major lease expirations, capital costs, etc.; the tax implications of real estate ownership. The first three factors tend to decrease the size of the spread between cap and discount rates. To the extent that real estate receives favorable tax treatment relative to other investments, the fourth factor will tend to enlarge the spread. Free Tools and Resources For Commercial Real Estate Professionals Testimonials "We closed on our $80 million portfolio acquisition last Friday! I wanted to personally thank you and your team for your efforts in helping us work through the underwriting process for our largest acquisition to-date. Not only were we able to meet the sellers expectations...we were able to get to the finish line in record time! Looking back, given the complexity of the transaction's structure and the fact that it was an eleven building portfolio, it's amazing that we were able to close ten weeks after being selected as the purchaser -- we would not have been successful without the support and effort of the Realogic team. Thanks again for all your efforts -- and please pass along my thanks to the rest of your team. Let's get the next deal!" *Shawn A. Janus, Executive V.P., Lillibridge Healthcare Real Estate Trust* "Ellipsis has given our organization a tremendous boost. By providing accurate lease information at the outset, it streamlines the underwriting associated with every aspect of the business: acquisition, financing, operations, portfolio management, and disposition. There is no question that our lenders appreciate the quality, detail and presentation of the lease data generated by Ellipsis. Ellipsis helps us get deals closed - fast. Ellipsis has become integral to the daily operation of our business." *Don Allen, Managing Member, Monroe Investment Partners* "Ellipsis has exceeded our expectations! It really has 'standardized' our due diligence and lease administration functions. Our entire organization now has access to consistent, detailed abstracts and other critical lease data. It's ability to track critical lease dates has become instrumental in how we manage all our lease data. We originally purchased it for our 3rd party property management business, but found it's a great solution for our corporate lease administration clients as well. Ellipsis actually helped launch our corporate lease administration business." *Ms. Lin Fischer, Property Manager, Siegel Gallagher Management Co.\ ONCOR Intl.* The Realogic Team The following people have recently joined the Realogic Team. Emily Lawrence Emily recently joined Realogic as a Staff Consultant. Emily most recently worked at Crane and Norcross, a law firm specializing in appealing property taxes. Prior experiences include Contracts Administrator at American Tower Corporation, a telecommunications company out of Boston, MA. Emily graduated from Saint Joseph's University with a BA in Political Science. Daniel Phelps Daniel joined Realogic as a Staff Consultant. Daniel graduated from the Kelley School of Business at Indiana University with a degree in Finance Real Estate. Daniel's prior experience includes property management and tenant representation. Adam Lee Adam joined Realogic as a Senior Software Developer for Ellipsis software. Adam has been a software developer professionally for over 5 years, moving to Chicago in August of 2000 to work on a mobile presentation server product for Curious Networks after leaving Minneapolis-based Java technology leaders, Cyrus Intersoft.			Upcoming Events See Us At: BOMA Suburban Chicago Schaumburg, IL March 25, 2004 Booth 19 RealComm 2004 San Francisco, CA June 3-4, 2004 Booth 2009 GLOSSARY OF LEASE TERMS This valuable resource will help real estate professionals, at all levels, learn and understand the definitions and meanings of certain lease terms and phrases. Please click here: Lease Terms

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