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Problems in Real Estate Valuation

            It was once said by a wise man that you cannot judge a book by its cover. That is true for my real estate property. Prior to performing Pro-forma for the City Center, I believed it would be a quick turnover with this property. I thought I could just acquire a construction certificate to update the first floor with multiple conference halls, a larger retail space, and other services that could significantly increase the company revenues. However, after analyzing the operating expenses associated with the additional services, I realized that the most valuable use of this building is as office space.
             With office space, City Center is expected to grow at 11 percent annually and with operating yearly growth of 2.3 percent. As showed on the excel below, City center lead tenant the Investment Company Institute alone pays over U.S $300,000 per month, in addition to the rest of the tenants that fully occupy the other eight floors. City Center has been profitable over the past decade with an average growth rate of 10 percent. In this paper, I will discuss the process that lead me to a final conclusion that the best use for this building is the office.
             Other potential uses would ultimately not be as profitable. For instance, if I decided to convert the building's first floor into conference halls, larger retails, and restaurants, I would have to increase operating expenses to cover these activities. Conference halls could be beneficial to the company in terms of visibility and exposure to the worldwide media coverage. However, the operating expenses associated with these services would reduce the company revenue over the long-run.
             In searching for more profit, we might risk losing the 11 percent growth that the company has enjoyed and that is predicted to stay constant over the long-term. Furthermore, with the increased congestion from conference hall guests and restaurant clients, City Center might risk losing its prime tenant, the Investment Company Institute.

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