Single Family Residential Case

3007 P ST NW, Washington, DC, 20007

1. Recommendation:

Do not pay in excess of $1,968,000 for the subject property located at 3007 P St NW, Washington, DC, 20007. This value will provide a 10% Internal Rate of Return and a 23.2% average cash-on-cash.

2. Issues:

▪ Rental Rate- One main issue was coming up with the appropriate rental rate. REIS, Costar and various other reports were used based on the NW DC/Georgetown submarket. From these studies, a rental rate of $2.89 per square foot was calculated. Using this calculation, the property would have a monthly rental income of $6,878 ($2.89 x 2,830 sq ft). This approach doesn’t take into consideration the English basement as additional income, parking, superior location, and overall quality and appeal of the property. After conducting more research and speaking to broker Nicki Berg from Colliers International on February 1, 2012 at 10am, a monthly rental price of $11,600 was deemed appropriate given the prestige of the property.

▪ Rental escalation- Based on data from Costar and REIS, a rental escalation of 3.5% was projected. Based on conversations with professionals in the industry, a 4.0% rental escalation was used.

▪ Vacancy Rate- Based on a REIS submarket study, the average vacancy for the NW DC/ Georgetown submarket is 4.0% for a five year annualized forecast. Vacancy generally moves inversely with the strength of the market. That is, the weaker the market, the higher the vacancy. If the market turns, vacancy in such a luxury property could be significantly affected.

▪ Unemployment-A large firm could potentially move out of the area, creating a large vacancy amongst the submarket.

▪ Supply-A large apartment complex could be built in the area increasing the vacancy rate. This concern was eased by the absorption rate in the submarket.