Case Analysis: Steel Street Harvard Case Solution & Analysis

New Model

The appendices B, C, D and E have been made to show the new calculations while there are not major changes which were made in the calculations. However, minor changes have been made in the excel sheet such as the discounting rate has been rounded to 10% for all the debt. On the other hand, the hedge fund has been excluded from the scenario. Moreover, the third source is assumed as external equity. In addition, the pro forma of the company is indicating that the company will have negative cash flows initially while they will be converted in to significant positive amounts. Finally, the construction budget has been made by adding the per floor cost to the initial uses of sources to reach the final balance. However, the cash flows valuation still indicatesthat the project is not feasible as the value of NPV is still negative after discounting the inflows at a rate of 10%.


Appendix A

Pro Forma4Q 200820092010201120122013201420152016
Rent Roll$80,451$551,876$710,648$768,735$768,735$768,735$845,609$930,169$1,023,186
Vacancy (10%)-8,045-55,188-71,065-76,874-76,874-76,874           (84,561)    (93,017)     (102,319)
Effective Gross Income72,406496,689639,583691,862691,862691,862           761,048    837,152       920,868
Op Ex @ $4.50-37,634-150,273-167,699-185,126-185,126-185,126           (34,247)    (37,672)       (41,439)
First Mortgage-20,282-81,128-81,128-81,128-81,128-81,128         (116,288)  (127,917)     (140,709)
Second Mortgage-25,875-103,500-103,500-103,500-103,500-103,500         (145,360)  (159,896)     (175,886)
Bridge Loan-22,500-90,000-90,000-90,000-90,000-90,000         (127,500)


Appendix B

Sources and Uses Table

Sep-08 PurchaseJan-09 Construction FundingDec-09 Year EndJan-10 2nd Phase ConstructionDec-10 Year End
First Mortgage From Seller$1,081,705
Second loan form bank1,035,000
raise equity outside the firm600,000
Total Sources2,245,5901,035,000
Purchase Price
Capital Improvements Contingency Developers Fee125,000794,000483,000
Leasing Fee50,00020,000
Mortgage  origination fees40,000
Legal Costs50,000
Interest Expense33,885103,50068,001
Cost of equity 10% assumed60,000
Total Uses of Funds2,161,590794,000123,500483,00068,001
Surplus/Deficit Cash84,000241,000-123,500-483,000-68,001
Cumulative Cash Balance$84,000$325,000$201,500($281,500)($349,501)

Case Analysis Steel Street Harvard Case Solution & Analysis

Appendix c

Pro Forma

Pro Forma4Q 20082009201020112012201320142015201620172018
Rent Roll$80,451$311,183$342,301$376,531$414,185$455,603$501,163$551,280$606,408$667,048$733,753
Vacancy (10%)-8,045-31,118-30,284-30,283-30,282-30,281-30,280-30,279-30,278-30,277-30,276
Effective Gross Income72,406280,065312,017346,248383,903425,322470,883521,001576,130636,771703,477
Op EX @ $4.50 a-37,634-96,458-65,925-65,924-65,923-65,922-65,921-65,920-65,919-65,918-65,917
First Mortgage-108,171-108,171-108,171-108,171-108,171-108,171-108,171-108,171-108,171-108,171-108,171
Second Loan0-103,500-103,500-103,500-103,500-103,500-103,500-103,500-103,500-103,500-103,500
Cost of equity 10% assumed-60,000-60,000-60,000-60,000-60,000-60,000

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