Consider a plot of land. You can construct an office building at a cost of $$5 m$ or a hotel at a cost of $$7 m$ . For the office building you expect an $NOI$ in year 1 of $$240, 000$ and an $NOI$ in year 2 of $$400, 000$ . For the hotel you expect an NOI in year 1 of $$360, 000$ and an $NOI$ in year 2 of $$500, 000$ . After year 2, the NOI will grow at $4%$ for both properties. Your discount rate is $10%$ in both cases. What is the estimated value of your plot of land?

Question

Consider a plot of land. You can construct an office building at a cost of

$5 m

or a hotel at a cost of

$7 m

. For the office building you expect an

NOI

in year 1 of

$240, 000

and an

NOI

in year 2 of

$400, 000

. For the hotel you expect an NOI in year 1 of

$360, 000

and an

NOI

in year 2 of

$500, 000

. After year 2, the NOI will grow at

4%

for both properties. Your discount rate is

10%

in both cases. What is the estimated value of your plot of land?

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