Real Estate Finance project. Please see attached files for relevant information B. Market Analysis. Is it overall inferior, similar or superior to 860 Washington? If possible, go visit this sale comp.

1 860 Washington Street Case Study Presentation Rea l Estate Primary Markets, Spring 2019 Setting : Monday, April 15 , 201 9. Jon Tarrow is the new Chief Investment Officer (CIO) of the Eastland University Endowment Fund (the “Fund ”), which is located in the eastern United States. The Fund provides a permanent source of capital to support the University’s mission and programs . The Fund is managed by a professional investment staff within the Eastland University Investment Office. The Fund’s o bjective is to support University students and faculty in the present and in the future, by providing current financial support to the University’s operating budget while also preserving the Fund’s long -term purchasing power. The value of the Fund is curr ently $7 billion, which makes it a relatively mid -sized institutional investor. Historically, the Fund has invested capital based on the Norway Model, which is characterized by a 60%/40% equity/fixed -income allocation and largely passive investments. In his new role as CIO, Tarrow seeks to change the Fund’s investment strategy by shifting a large amount of assets from traditional investments to alternative investments in order to increase portfolio diversification and the risk -adjusted return of the Fund . Specifically, Tarrow wants to adopt the Yale University Endowment Model as an investment approach, which is characterized by high alternatives exposure, active management and using external managers. The Fund’s current and proposed asset allocation s are presented in Exhibit 1: Exhibit 1 – Current Asset Allocation vs Proposed Asset Allocation Asset Current Asset Allocation Proposed Asset Allocation Stocks 60% 40% Bonds 40% 15% Private Equity 0% 10% Real Estate 0% 20% Hedge Funds 0% 10% Timber 0% 5% Total 100% 100% Tarrow recently hired Jane Lee , Senior Vice President, as the new head of real estate for the Fund. During a recent internal meeting, Tarrow and Lee conclude d that the current real estate investment strategy is to source strictly core office investments in urban infill locations in gateway markets . Lee and her investments team ha ve been analyzing the potential acquisition of the leasehold interest of 860 Washington Street, a 10 -story, Class A office building located in the Chelsea submarket of the larger Midtown South Manhattan Office market. The investment 2 opportunity is a Joint Venture (JV) equity transaction that was presented to Lee from Saturn Office Properties (“Saturn”) , a NYC -based owner and operator of Class A office buildings in the New York City metro area. Saturn and Lee have transacted numerous times in the past when Lee ran the real estate group at her prior employer, a large Asian sovereign wealth fund. These prior transactions inclu ded the acquisition of ten Class A urban office and multifamily properties located in gateway markets and 18 -hour cities in the US over the past three years . Cushman and Wakefield , the 860 Washington sales broke r, is marketing the sale of the leasehold interest to prospective buyers. Saturn was one of several prospective buyers contacted by Cushman and Wakefield for this sale due to their prior relationship . The Property /Investment : 860 Washington Street is a 10 -story, 1 20,413 sf ( gross ) Class A office tower with two stories of retail located at 860 Washington Street in the heart of the Meatpacking District of Manhattan . Adjacent to the High Line and across the street from The Standard (848 Washington Street ), 860 Washington Street was built in 2017 and is one of the most prominent boutique office buildings built in NYC over the past few years. The property is currently 91% occupied and includes notable tenants, such as Tesla Inc., Alibaba Group and Delos. Offi ce rents range from $140 psf - $170 psf modified gross while the ground floor Tesla rent is at $600 psf NNN (See rent roll in the 860 Washington Street Group Case Study Template file ). The current property owner, Romanoff Equities, has recently created a ground lease structure and will seek to sell the improvements (i.e., building or structure) while retaining ownership of the land. The ground lease will have a term of 99 years, an annual ground lease payment of $3,350,000 and ground lease payment growth rate of 3.50% every 10 years. The Fund and Saturn have agreed to allow Lee’s investments team to lead the valuation efforts since the Fund will be contributing the vast majority of equity to acquire the leasehold interest. Lee’s investments team recently completed a fee simple ownership cash flow pro forma and valuation of 860 Washington Street after completing initia l underwriting due diligence, which included a detailed review of the leases, site inspection with tenant interviews, review of the Offering Memorandum and discussions with local leasing and sales brokers. The initial fee simple valuation is $281.37MM ($2 ,337 psf), which equates to a year 1 implied NOI cap rate of 4.97% (See “860 Washington Street Group Case Study Template” file). This valuation assumed a 5.00% terminal cap rate (exit cap rate) and 6.00% discount rate. Market: After the initial cash fl ow pro forma and valuation were completed, Lee’s investments team review ed the new Midtown South Manhattan Office CBRE Q1 2019 market report , which indicates, among other things, net absorption of -600,000 in Q1 2019. In addition, Lee’s analyst briefly summarizes new competitive local office supply, which is presented in Exhibit 2: 3 Exhibit 2 – Summary of New Local Office Supply Project Status /Comments SF Distance from 860 Washington 40 Tenth Avenue Under construction TBD TBD West 15 th Street New/renovated buildings TBD TBD 540 West 26 th Street See sales comps chart TBD TBD 118 Tenth Avenue Proposed TBD TBD 300 Lafayette New asset; Similar boutique property as 860 Washington TBD TBD After completing an initial review of the CBRE market report and new local office supply, having updated discussions with local leasing brokers , and reviewing press reports indicating uncertainty about Tesla closing stores throughout the country , Lee and her investments team implement a number of changes to the market leasing (underwriting) and valuation assumptions. These changes also reflect the potential ac quisition of the property’s leasehold interest as opposed to the fee simple ownership interest. Lee’s analyst presents a summary of these revised market and valuation assumptions in Exhibit 3: Exhibit 3 – Comparison of Initial and Revised Market and Valu ation Assumptions Variable Initial Assumption Revised Assumption Renewal Probability 70 .0% 75 .0% Downtime (Months Vacant) for new tenants 6 months 9 months Tenant Improvements Office: $90 psf for new lease and $45 psf for renew al lease Retail: $25 psf for new lease and $10 psf for renew al lease Office: $95 psf for new lease and $50 psf for renew al lease Retail: $30 psf for new lease and $15 psf for renew al lease Rent Abatement (Free Rent) 9 months for new lease / 4 months for renewal l ease 12 months for new lease / 6 months for renewal lease Vacancy Allowance 4.00% 5.00% Ground Lease Payment (Ground Rent) $0 The ground lease will have a term of 99 years, an annual ground lease payment of $3,350,000 and ground lease payment growth rate of 3.50% every 10 years. Cost of Sale 3.00% 2.00% 4 Terminal Cap Rate 5.00% 5.50% Discount Rate 6.00% 6.50% All other assumptions from the initial pro forma cash flow and valuation will stay the same. Lee’s investments team will value the leasehold interest of the property using the Building NOI DCF method while assuming a 10 -year holding period and sale at the end of ye ar 10. Lee’s investments team has identified one sale comp, 430 West 15 th Street, that traded on 6/12/18 for $1,616 psf and a 4.82% cap rate. This sale represented the leasehold interest of a 7-story, 100% occupied, 98,087 sf office building located only 0.40 miles from 860 Washington. The investments team will conduct additional due diligence on this sale comp to determine if it provides valuation support for the current investment opportunity (See Sales Comparables tab in the 860 Washington Street Group Case Study Template file) . Financing : In the event that the Fund and Saturn are the winning bidde r of the leasehold interest , they will obtain a CMBS senior mortgage loan and mezzanine loan to facilitate this acquisition. Lee contacted prior lending relationships on Wall Street and received CMBS senior mortgage and mezzanine loan quotes with the following terms that are presented in Exhibit 4: Exhibit 4 – Financing Terms CMBS Senior M ortgag e Loan: Loan Term 10 years Amortization Schedule 30 years Coupon 4.35% Maximum LTV/LTPP 60 .0% Minimum Underwritten Debt Yield 8.50 % Minimum Underwritten DSCR 1.40x Lender’s Underwritten Cash Flow $9,780,859 Insurance Company Mezzanine Loan: Loan Term 10 years Amortization Schedule Interest -Only Coupon 8.75% Maximum Last Dollar LTV/LTPP ((Senior Mortgage Loan + Mezzanine Loan)/Value of Leasehold Interest) 70% Minimum Underwritten Last Dollar Debt Yield ((Lender’s Underwritten Cash 7.40% 5 Flow)/(Senior Mortgage Loan Amount + Mezzanine Loan Amount)) Minimum Underwritten Last Dollar DSCR ((Lender’s Underwritten Cash Flow)/(Senior Mortgage Debt Service + Mezzanine Loan Debt Service)) 1.10x Lender’s Underwr itten Cash Flow $9,780,859 Equity Cash Flow Waterfall /Return Distribution : As part of the JV equity partnership agreement, the Fund and Saturn (the local operating partner ) have agree d to combine funds in order to acquire 860 Washington Street. The Fund will fund 90.0% of the required equity and Saturn will contribute 10.0% of the equity. In order to incentivize Saturn to maximize the project's return, the Fund w ill receive a pro -rata split (90/ 10) of the returns up to 6.00% IRR, and then they will offer Saturn 20.0% of the additional earned money up to 8.00% IRR and then 30.0% of any earned money over a n 8.00% IRR. Assignment : Prepare a written presentation, ideally in PowerPoint but you can use whatever tool you prefer, organized in 4 sections no longer than 7 pages. A. Executive Summary . Do you recommend acquiring the investment (i.e., leasehold interest in property) , if so at what price, what is your rationale? B. Market Analysis. What are t he key market trends and what are the key market risks that support your recommendation? Complete the TBDs in the new local supply chart. How does the sale comp, 430 West 15 th Street compare to 860 Washington? Is it overall inferior, similar or superior to 860 Washington? If possible, go visit this sale comp. C. Property Analysis. What are the key positive and negative attributes of the property and how did you factor these into your financial analysis? D. Financial Analysis. Present your cash flow forecast, a valuation consistent with your investment recommendation, equity cash flow waterfall, and any other supporting written materials you wish to add. What are the unlevered and levered project returns for the Fund and Saturn ? What is the total le verage on the fee simple value (i.e., (Loans on Building + Land Value)/Fee Simple Value)?