2021 ARGUS University Challenge

A NEW START
 2021 ARGUS University Challenge
“A New Start”
For many beings, the chance to make a fresh start somewhere new is an attractive proposition. For
others, it is a necessity. For most of the residents of New Alderaan, a new start is both. Following
an unfortunate “accident” involving the first Alderaan, former residents were determined to create
a new model planet called New Alderaan.
New Alderaan is an idyllic planet located in the mid-rim district of the galaxy. Due to its wonderful
climate and generally safe environment, New Alderaan has experienced rapid growth since its
founding. Compared to neighboring planets, New Alderaan offers 1) exceptional schools, 2) a
close-knit community of survivors, and 3) a welcoming and supportive environment for new
arrivals. The cost of living is remarkably low compared to galactic centers like Coruscant, but of
course may be considered relatively high by those arriving from less populated locations like
Naboo or Tatooine. New Alderaan does have relatively high property taxes that are used to support
the schools and rapid development of new infrastructure. Rapid immigration has placed a strain
on the existing infrastructure, so it is expected that these property taxes may increase in the future.
The subject property is located in the capital city of Aldera, a small to medium-sized, albeit
growing, coastal city reflective of the planet as a whole. The city is home to a diverse collection
of races and creeds. Aldera is also home to the main spaceport on New Alderaan, and as such is
the center of most of the commerce on the planet. In addition to the spaceport, there are numerous
markets and transportation hubs throughout the city where residents bring their goods for sale
throughout the galaxy. Among the more popular items are the famous Alderaan spiced wine and
luxury speeders.
Like most capital cities, Aldera is more expensive than the planet as a whole. The publicity
surrounding the “accident” involving the original Alderaan created an initial wave of new settlers
to the area. After a year or so, this initial wave crested. But in recent years, rumors of some sort of
galactic unrest have caused many beings to seek the safety of more isolated locations, while still
maintaining contact with the rest of the galaxy. Aldera has been a leading beneficiary of this trend,
and net immigration has skyrocketed in the last year. As such, private residences are at a premium,
and the cost of private homes near the city center has risen dramatically.
Despite the overall good economic conditions, during the last year New Alderaan has fallen victim
to a galaxy wide pandemic, caused by Clone Originated Viral Infectious Disease (COVID).
COVID has had profound economic and social effects on New Alderaan and the city of Aldera.
Fear of contracting this potentially deadly virus has had many consequences. Among them, many
retail establishments have suffered a dramatic decrease in business as restaurants have switched
primarily to a takeout format and many beings have taken to droid delivery of packages to their
door through online shopping giant Dagobah. Increased Holonet access has allowed many workers
who previously occupied office space to work from their homes instead to avoid the disease. As a
result, vacancy rates among retail and office properties have increased dramatically over the last
year.
Many property owners fear that the vacancy rates actually understate the problem, as some tenants
who are current on their rent payments have indicated that they may not remain so. Others have

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 2021 ARGUS University Challenge: A New Start

indicated that while they intend to abide by their leases, they will require less space when those
leases expire, and/or they expect a decrease in the rental rate.
Subject Property
The building under consideration is a mixed-use development located at the intersection of
Imperial Drive and Republic Court. The building occupies a little over half of an acre, and consists
of ground floor retail stores and two floors of office space above. In addition, there is speeder
parking located on the top floor of the building with spaces for approximately 120 speeders.
Currently the parking is used to provide free parking to tenants and guests in this crowded part of
town, but the actual use is entirely within the discretion of the property owners.
The subject property is a five-minute speeder ride from the spaceport, and is within walking
distance of numerous apartment buildings, restaurants, and grocery stores. In addition, there is an
urban park located nearby. While leases on this and similar properties have traditionally been
written primarily on ten-year terms, it remains unclear if the current economic environment will
affect this practice going forward.
The subject property was developed nine years ago, and has functioned well for that entire time
period, until 2021. Some normal maintenance to the property should be expected over the course
of ownership, and some upgrades may need to be considered by the new owners due to the
property’s age.
A management and leasing firm, Sheev Management & Leasing, will oversee the management of
the property in return for a 5% annual fee. If the new owners decide to sell the property, Sheev
will handle those functions as well in return for a 3% commission, based on the sale price of the
property. Sheev charges a 6% commission if they have not managed the property for at least three
years prior to the sale.
Mortgage Consideration
The property will be subject to a mortgage from First Imperial Bank, and the decision to purchase
the property must consider the cost of this loan.
The intent is to qualify for a 60% LTV mortgage at an interest rate of 5.25%. The value of the
property will be based on the lower of the purchase price or the appraised value. The loan itself
will feature a 30-year amortization schedule, but the loan will be due in full in ten years.
General Market Information
The most recent market level data available is from year end 2019. Unfortunately, this data
precedes the arrival of COVID and the subsequent economic effects. The data do include the sales
of several multi-use properties built approximately ten-fifteen years ago (from today, not the time
of sale) of roughly similar size and quality to the subject property. The subject property is
perceived as being in a somewhat better location than any of the comparable properties. Sales of
land zoned for similar uses have not occurred in the past five years.
The unemployment rate in Aldera was 2.5% prior to the arrival of COVID, but is currently 7%.
This unemployment rate is still better than in many surrounding areas of the galaxy. There are

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 2021 ARGUS University Challenge: A New Start

rumors of impending vaccines against COVID, but the ultimate impact on unemployment is still
unknown.
Other data about Aldera is available through Imperial Statistical Bureau (ISB). ISB is the
authoritative source for data throughout the empire, but some users have quietly noted that their
estimates regarding future physical or economic changes are sometimes not as accurate as hoped.
A very small number of users of their data complained that the data was just wrong, but no one
can find those people anymore to confirm their complaints. Their data is also from year end 2019.
The Challenge
The challenge is to examine the available data, including sales and leases, and deliver a quarterly
analysis of the property’s performance over the next ten years. This analysis should be used to
support one of the following three options.
1. Invest in the property and hold it until improving market conditions allow the property to
be sold at a profit.
2. Invest in the property and make improvements aimed at improving the property
performance in a COVID influenced, or post-COVID, environment, and sell the property
before market conditions worsen.
3. Decline this investment opportunity.
Consider the following in the analysis. The best estimate for the purchase price of the property is
approximately $6 million. What will the impact of COVID be on these properties going forward?
Will improvements or changes to the property be needed to upgrade any of the areas, including
parking? Will there be adequate parking given current COVID related issues but also in
conjunction with previous trends toward ride sharing and other mass forms of transportation? What
will be the impact of COVID on lease terms?
The prospective owners require quarterly analyses through the next ten years or the holding period
of the asset using Altus Analytics’ ARGUS Enterprise software. All of your assumptions as well
as your actual ARGUS model runs will be rigorously examined and challenged to ensure the
correct investment decision is reached.

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 2021 ARGUS University Challenge: A New Start

SCHEDULE A – IMPROVED SALES DATA

Purchaser / Antilles Properties Solo Bank and Trust Darklighter Law

Property Type (Office and Retail) (Retail) (Office)
Date of Purchase Mar 2019 November 2018 February 2018

Age at Sale (Years) 5 5 10

Square Footage 18,000 7,000 8,000

Price/SqFt $320 $257.14 $215.38

Tenants 9 4 4
Avg. Space per
2,000 1,750 2,000
Tenant (SqFt)
Avg. Rent/SqFt $44.00 $40.00 $38.00

Vacancy 0 0 5

Expense/SqFt $28.00 $22.00 $23.00

NOI/SqFt $16.00 $18.00 $14.00

Cap Rate 5.00% 7.00% 6.50%

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 2021 ARGUS University Challenge: A New Start

SCHEDULE B – MARKET STATISTICS 2019

ISB DATA YEAR END 2019
The current population of Aldera is approximately 700,000. The
population density of the city is approximately 1,100 beings per
square mile. The city is on the lower end of the population scale
for this part of the galaxy and is much lower in population density
POPULATION
than most cities in the area. The city itself is tree-lined, with rolling
mountains visible outside of the city as well as nearby forested
lakes available for the use of residents.

The city has been growing rapidly due to its low cost of living and
relaxed immigration policies. This growth has occurred despite the
area’s suspect views regarding Imperial law, and ISB expects that
COMMUNITY growth will decrease in the near future as loyal citizens become
APPEAL more aware of this negative aspect of the area. Recently, Imperial
forces have begun more closely monitoring New Alderaan for
signs of subversive activity.

The office market in Aldera has seen a surge in demand during

2019, as the area experiences continued growth. Current office
vacancy is hovering around 3%, and with few new projects to
absorb the increased demand ISB anticipates further tightening in
this market. Retail has slightly higher vacancy rates of around 8%,
OFFICE AND RETAIL mostly due to decreased department store sales as a result of
MARKETS continuing growth by Dagobah online sales. However, strong
restaurant demand appears to be absorbing much of the former
department store space. ISB anticipates that continued strength in
the restaurant sales area will decrease overall retail vacancy rate
over the next two to three years.

Office space in the downtown Aldera region has generally

averaged around 1,000-2,500 square feet, except for a few
SIZE OF RETAIL extremely large office occupants who serve as outliers. Retail
STORES AND space has generally averaged between 2,000-3,500 square feet,
OFFICES again with a few outlier occupants such as Cal-Mart Supercenter
stores.

Office tenant leases are typically gross leases where the landlord
pays for all expenses in the first year, followed by annual rent
increases throughout the remaining lease term of 2% until the lease
TYPICAL LEASING expires. Most leases are historically written for five to ten-year
PROFILES – OFFICE terms at rates of between $40-$50 per square foot. Most leases
AND RETAIL contain a 2-3% discount for renewing tenants. These lease terms
are firmly entrenched by long tradition, and ISB does not anticipate
any changes to the general format in the future.

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 2021 ARGUS University Challenge: A New Start

ISB DATA YEAR END 2019

Retail leases are typically triple net leases, where the tenant pays
for all expenses in the first year, other than structural repairs,
management fees, and reserves. The tenants pay for these expenses
on a pro-rata basis determined by square footage of retail space
occupied. Annual increases to the tenant of 2% per year throughout
the remaining term of the lease are typical. Again, most leases are
written for five to ten-year terms, and have recently been written
between $35 and $45 per square foot.

Mixed use buildings have ranged from approximately $250-$300

per square foot. There is a wide range depending on location and
SALES PER SQUARE the specific type of office or retail tenant. Prime addresses and
FOOT established tenants can exceed $300 per square foot in sales, while
others can substantially lag.

Mixed use developments similar to the subject property have sold

relatively recently at cap rates between 5-7%. ISB anticipates that
CAPITALIZATION these cap rates will remain relatively stable as the economy
RATES continues to thrive and Aldera continues to present a near ideal
live-work-play environment.

Office vacancy rates have remained steady at between 2-3%

throughout the Aldera metro area for several years. Retail vacancy
rates have been in the range of 1-4%, with a gradual rise toward
VACANCY RATES the upward end of that range. ISB anticipates that vacancy rates for
retail will stabilize between 4-5% and office vacancy rates will
remain within their normal range.

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 2021 ARGUS University Challenge: A New Start

SCHEDULE C – SUBJECT PROPERTY LEASED SPACE DATA

ORGANA TOWERS
Tenant Annual Lease Term
Square Reimbursements /
Business Rent / (Start/Years
Footage Rent Increases
Type SqFt Remaining)
Mothma Law
Full-Service $16/SqFt Stop
1,200 $42 10/5
Law Firm Amount
Office
Sienar
Starship
Engineering $16/SqFt Stop
engineering 1,500 $44 10/2
Amount
offices
Office
Jawa Find
Emporium Discount $15/SqFt Stop
2,500 $40 10/3
Retailer Amount
Retail
Bantha
Steakhouse Full-service $15/SqFt Stop
2,000 $36 10/6
restaurant Amount
Retail
Bacta Treatment
Center $16/SqFt Stop
Medical Office 2,000 $45 10/1
Amount
Office
Alliance Political
Full Service, 2%
Defense Fund Action
1,000 $30 10/9 Annual Rent
Committee
Increase
Office Office
Alderaan Home
Finders Real Estate $16/SqFt Stop
1,300 $43 10/2
Office Amount
Office
Blaster
Emporium $15/SqFt Stop
Blaster Sales 2,500 $48 10/4
Amount
Retail
Kessell Run
Burgers $15/SqFt Stop
Fast Food 1,600 $40 10/6
Amount
Retail

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 2021 ARGUS University Challenge: A New Start

SCHEDULE D – SUBJECT PROPERTY INCOME

Revenues Office Retail
Gross Leasable Area 7,000 SqFt 8,600 SqFt
Gross Income/SqFt $41.76 $41.40
Vacancy and Credit Loss 15% (0% before 2021) 20% (0% before 2021)
Effective Gross Rent/SqFt $35.49 $33.12
Effective Gross Rent $248,430 $284,832
Recovery $0.00 $1.66
Effective Gross Rent After Recovery/SqFt $35.49 $34.78

SCHEDULE E – SUBJECT PROPERTY EXPENSES

Expenses Office Retail
Gross Leasable Area 7,000 SqFt 8,600 SqFt
Insurance/SqFt $0.55 $0.65
Utilities/Heat/SqFt $3.00 $3.50
CAM (Common Area Maintenance)/SqFt $1.50 $1.50
Structural Repairs and Maintenance*/SqFt $1.00 $1.25
Management and Leasing*/SqFt $1.77 $1.66
Legal and Professional/SqFt $0.75 $0.75
Reserves*/SqFt $0.40 $0.40
Real Estate Taxes/SqFt $18.00 $17.00
Management Fee 5% 5%

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