Western America- Desert Inn Office Center

These are four, small (116,000 Sq. Ft. total) office buildings on two contiguous parcels along Desert Inn Blvd. in Las Vegas.   It was purchased by Western America in January 2006 for $22,200,000, with an appraised value of $22,500,000. Western America immediately offered and sold this property to TIC investors for $24,720,000. The PPM contains an ARGUS spreadsheet projection for the building covering 10 years of operations into the future.  The projection is for increasing cash flow, year after year.    There are no added disclosures “to inform investors about the inherent uncertainty of financial modeling” that Western America would later add to its PPMS.   But this is largely beside the point.  It’s not the software.  If you want to get reality out of the software program, you need to put reality into the program.  This projection results in increasing cash flow, because that is the result that you get, based upon the assumptions that you make.   No PPM puts out projections that say: hey, this building is likely to lose money, especially beginning in the 4^th year.    Let’s say that you were a due diligence officer from one of the brokerage firms considering offering this project to investors, and that you are standing on the street in front of this building in January 2006.  What do you know and what do you want to know?  The PPM says that Nevada had been the fastest growing state in the US for 18 years in a row up to that point.  The projections say: more growth for another 10 years.   Ask yourself, is it likely?  18 years of growth, and the projection is for 10 years more of the same.  Can it happen? Has it ever happened?  What happens if the projection is wrong?   How important is this?  The PPM says that the vacancy rate for office space in Las Vegas was over 10% at that time, and that when completed,  the offices then under construction would add more than 10% to the total office space available.  So, was continued growth important, absolutely?    But was it likely to happen?    Probably not.   So why would any broker offer this particular property to investors at this price, at this time?