TO: Professor Simon
FROM:
DATE: May 19th, 2014
OBJECT: Equity Contribution for Pilgrim Assurance Building

On behalf of David Bailey, there have been individuals looking into the property located at 795 Atlantic Avenue. As an investor, Bailey is interested in making an offer on the property however he is trying to make his offer look more attractive than the competitors. With thorough research, he has found ways that would improve the building and in turn generate a larger yearly cash flow while still being able to improve the building. Bailey was also considering converting the current office space building into condominium units but that was strictly dependent on the revenue that could be generated from doing so. …show more content…
The second solution available to Bailey if he were to successfully outbid his competitors would be to convert the current office spaces into condominiums. While the entire conversation process would take about two years and that would be 2 years that he is missing out on revenue, in the end the revenue generated by the condo income is well worth taking a loss the first two years. When converting the space into condos, he would be taking in a profit of about $350 to $400 per square foot. This conversion would include 150 units with an average size of the unit being 1,060 square foot and cost him about $200 per square foot to convert. By doing this he would be reducing the total saleable area because he would need to create more new common areas and hallways, but even so, Bailey would still generate an enormous profit. Taking all of this into account, the projected value of the building 5 years from the purchase date with the interior consisting of condos would be $17,979,598.21. Also by converting the building into condos, yes there would be a loss of net operating income in the first 2 years, but in the third year the income would be $16,326,807.50 (see Exhibit B).

IV. RELATIVE DATA
With the conversion of the Pilgrim Assurance into condos, it is a 159,000 square foot project with approximately a 30% vacancy rate. Using the value of $600 per square foot as the