What is the financial planning that goes into building aquisitions

Larry Feldman: We do a top-to-bottom financial analysis where we evaluate all of the costs necessary to work our magic. We reinvent the office building. We do things like these amazing fitness centers; we do new lobbies; we put in chill zones; we put in cappuccino machines, and soft seating.

We do all of these things, and we add up all the value of what we’re going to do in that particular building, in dollars and cents. We add that to the purchase price. We calculate what all of our financing, and closing costs are.

Now, we calculate what is our potential rent, once we get to a 90-, or 93-percent occupancy. That rent minus the cost of operating the building – that’s the utilities, the cleaning contractor, the staff to run the building … All of those expenses taken out of all the rent leaves us with the net income.

That net income we put in the numerator. In the denominator, we have the purchase price plus all the costs of the renovation. So, numerator divided by denominator, today, on an office building acquisition, we want to see a minimum yield, typically, of 8.5 percent. That 8-percent yield suddenly develops a very attractive yield to our equity.