You have been engaged by a high-net-worth syndication to source and secure a real estate investment opportunity. You have sourced an attractive opportunity on the fringe of the Sydney CBD and are required to complete a valuation of the commercial

Jamez

21 Nov 2025 • 5 min read

Assessment Task

You have been engaged by a high-net-worth syndication to source and secure a real estate investment opportunity. You have sourced an attractive opportunity on the fringe of the Sydney CBD and are required to complete a valuation of the commercial property to provide to your client. Valuation date is 1st July 2025. You are required to use the capitalisation method of valuation as a primary method (incorporating adjustments as necessary), and the discounted cash flow method as a secondary method.

Software

You are to complete this assignment using EXCEL SOFTWARE. Create a single excel worksheet sheet for each valuation method in your excel file.

Property Overview

This newly developed fringe CBD building comprises basement carpark, ground floor retail (F&B), plus 6 upper levels of office accommodation. The building provides 5,791 square metres of NLA and 30 car spaces (excluded from NLA calculations). The building is new condition however will require landlord capex costs in October 2028. This work is estimated to cost around $920,000 in today’s dollars and will not impact sitting tenants. Total Building Outgoings are $262,071 For the DCF, assume all base rents are as of 1 st July 2025, review dates occur on the 1st July each year, and expiries occur on the 30th June in the expiry year.

Tenancies & Leasing

IT Whiz have confirmed they will be vacating at the end of their current leases (will not exercise option).
All other tenants are happy in the building and have indicated they will be exercising their options.
Assume new leases are executed on a 10-year initial term with no option.
Comparable current market office space rents for floors Ground - 2 are $1,450 m2 NET pa
Comparable current market office space rents for floors 3 - 6 are $1,500 m2 NET pa
Comparable current market ground floor retail (F&B) space is around $1,750 m2 GROSS pa.
Comparable current single car space rentals are $550 per bay per month gross.
Current lease incentives are equivalent to three months net rent per year of the initial period of a new lease (Note: this also applies to existing tenancies).
Where a Net lease, building outgoing recoveries are allocated based on share of NLA.
Market Rent Reviews occur at exercise of lease option
All leases have ratchet clauses applicable to market rent reviews & exercise of option periods

Long Term Vacancy Rates

Commercial & Ground floor space – 2%
Car Parking Spaces – 2%

Brief Summary of Assessment Requirements

Task: Produce a professional commercial property valuation for presentation to a high-net-worth syndicate.
Property: Fringe-CBD mixed-use building: basement carpark, ground-floor retail (F&B), 6 levels office; 5,791 m⊃2; NLA; 30 car spaces (car spaces excluded from NLA). Building new but landlord capex of $920,000 (Oct 2028). Total building outgoings $262,071.
Leases & assumptions to apply:

IT Whiz will vacate at lease end; all other tenants will exercise options.
New leases (when required) assumed 10-year initial term, no option.
Market rents: Offices GF–2 = $1,450/m⊃2; NET pa; Floors 3–6 = $1,500/m⊃2; NET pa; Ground retail = $1,750/m⊃2; GROSS pa.
Car parking rent = $550/bay/month gross.
Incentives = 3 months net rent per year of initial lease (applies to existing and new leases).
Recoverable outgoings allocated by share of NLA where net leases apply.
Market rent reviews at option exercise; ratchet clauses apply.
Vacancy (long-term) = 2% for commercial/ground floor and parking.
Other: Use World/market evidence where needed; show graphs/tables in Excel; reconcile and explain adjustments between methods.

How the Academic Mentor Guided the Student Step-by-Step

The mentor’s approach focused on method, data integrity, Excel modelling discipline, and explanation of assumptions. Steps below follow the recommended workflow the mentor used to coach the student.

Project scoping & reading the brief

Goal: Ensure the student fully understands the client, valuation date, methods required, and mandatory Excel deliverable format.
Action: Mentor had the student highlight key dates (valuation date, capex timing), the tenancy facts (IT Whiz vacating), and market rent inputs. This prevented mis-dating cashflows or mis-applying rent rates.

Build a clean Excel workbook structure

Goal: Make outputs auditable and transparent.
Action: Create separate sheets: Inputs & Assumptions, NLA & Rent Roll, Capitalisation Valuation, DCF Valuation, Supporting Schedules (outgoings, incentives, vacancy), and Sensitivity. Mentor insisted on cell-driven inputs (no hard-coded numbers in formulas) and clear labels.

Populate the rent roll and tenancy schedule

Goal: Convert the property overview and leasing notes into a tenancy table usable for both valuation methods.
Action: Populate tenant names, NLA per tenant/floor, lease start/end dates, rent type (net/gross), review/exercise dates, incentives, car bays and car rents, and IT Whiz vacancy at lease expiry. Mentor taught how to model rollovers, lease renewals (10-year new leases), and assumptions for new lease rents (use comparable market rents provided).

Prepare operating income and outgoings schedules

Goal: Calculate effective gross income and net operating income inputs.
Action: Compute base rent income, parking income, apply 2% vacancy by category, allocate outgoings $262,071 according to recoverable shares, and apply 3-month incentive amortisation over the lease initial term. Mentor showed formula patterns for prorating incentives and for handling net vs gross rent treatments.

Capitalisation method worksheet (primary)

Goal: Arrive at a market capitalised value from stabilized income.
Action:
1. Determine stabilised Net Operating Income (NOI) for an appropriate base year (often the 12-month period from valuation date).
2. Identify or justify a market capitalisation rate (mentor guided on sources to justify a chosen cap rate, and how to adjust for location/quality/tenant covenants record rationale in Inputs sheet).
3. Apply cap rate to NOI to obtain the value; show adjustments (e.g., add value of parking if modelled separately).
Mentor tip: Always document rationale for chosen cap rate and any upward/downward adjustments.

DCF method worksheet (secondary)

Goal: Model explicit cash flows and terminal value to derive an alternate value.
Action:
1. Build annual cashflow rows: base rent (with scheduled reviews and ratchets), vacancy allowance, recoverable outgoings, incentives amortisation, landlord capex (one-off $920k in Oct 2028), and other tenant turnover costs as applicable.
2. Forecast for a suitable explicit period (e.g., 10 years) and compute a terminal value (exit NOI capitalised or Gordon growth).
3. Choose a discount rate (WACC or market yield) and discount cash flows to valuation date; mentor advised documenting discount rate selection and sensitivity.
Mentor tip: Reconcile rent review mechanics and option exercise dates carefully; reflect IT Whiz vacancy and replacement assumptions.

Sensitivity analysis and reconciliation

Goal: Show how value changes with key assumptions.
Action: Add sensitivity tables for cap rate ± differential, vacancy rate, market rent escalation, and discount rate. Reconcile capitalisation value vs DCF and explain divergences (timing of capex, lease profile).

Write the short commentary and final recommendations

Goal: Produce a concise written output summarising assumptions, valuation results, sensitivity, and advice for the client.
Action: Mentor guided the student to include: valuation date, brief property description, key assumptions, both method values, reconciled figure or recommended reportable value, risks (e.g., upcoming capex, tenant turnover), and recommended due diligence steps.