215 Lennon Ln: Centre Pointe—Investment Properly Analysis

A two-story office building, 215 Lennon is centrally located at Centre Pointe Business Park in Walnut Creek, and gives easy access to world class amenities. The building has a rentable area of 30,747 SF spread across two floors. Investors can purchase the entire building or assume complete ownership of the individual floors. Below are some key figures showing the long-term feasibility of 215 Lennon Ln.

Analysis

From the numbers above, we can work out if there is long-term value in investing in the 2531 Grove Way apartment building.

Price Per Square Foot

The price per square foot of 215 Lennon is $200.  The median price per square foot in Walnut Creek is $500. This means that, at $200 per square foot, 215 Lennon is a very reasonable investment in terms of pricing.

NOI

The Net operating income calculated for 215 Lennon was $590,650. This was calculated by subtracting operating expenses from the gross income earned from the property. Calculating NOI was important because it was needed to determine the cap rate of the property which is a significant property investment attribute.

Cap Rate

This was calculated by dividing the NOI by the sales price. The cap rate calculated for 215 Lennon was 9.6%. This is neither a high cap rate nor a low cap rate. This means that the neighborhood the property is located in is neither a low-risk nor a high-risk neighborhood for property investment purposes. It is somewhere in between.

Cash-on-Cash Return (COC)

This was calculated by dividing the cash flow by the down payment made for mortgaging the property. The COC calculated for 215 Lennon was 12%. This means that you will get your money back or the down payment you made for 215 Lennon in 8.3 years. This is great because generally, it takes much longer to get back the investment you made in a particular commercial property.

Debt Coverage Ratio (DCR)

This was calculated by dividing the NOI by the annual mortgage payments. The DCR calculated for 215 Lennon was 1.67. Since a DCR of 1.4-1.5 or upward is said to be ideal and what property investors should aim for, we can say that 215 Lennon has a good DCR. This ratio is important because it is the first thing that the lender will look at when evaluating your financing application for the property. The lower the DCR of a property, the higher the down payment the applicant will be asked to put down.

Internal Rate of Return (IRR)

The IRR calculated for 215 Lennon was 30.1%. The gross return was calculated at 6.615%. This is based on an investment period of 9 years and a consistent cash flow of $145,693. The initial investment (the down payment made) was also considered for the IRR. An IRR of 30.1% means that you would earn $81, 357 in net profits over nine years. This is a very healthy net profit. However, a high net profit generally carries a certain level of risk so you may want to consider this before going through with the investment.

Building Classification

215 Lennon is classified as a B-class building.  This means that Lennon 215 isn’t the most attractive building in the neighborhood that will yield maximum profits through rents from wealthy businesses. However, it will attract the attention of small business owners, who are looking for office space in the area and will be willing to pay a reasonable rent for it, such as $2.16 per sq. Ft per month that we have assumed for this property investment analysis.