Question

Real estate investment

LTD Corporation wants to buy a 320,000 square foot distribution facility on the northern edge of a large midwestern city. The subject facility is presently renting for $1.87 per square foot. Based on recent market activity, two properties have sold within a 2-mile distance from the subject facility and are very comparable in size, design, and age.

One facility is 350,000 square feet and is presently being leased for $1.85 per square foot annually. The second facility contains 300,000 square feet and is being leased for $1.90 per square foot. Market data indicates that current vacancies and operating expenses should run approximately 50 percent of gross income for these facilities. The first facility sold for $3,600,000 and the second sold for $3,000,000.

**Using an ovevrall capitalization rate approach to value, how would an estimate of value be made for the subject distribution facility?

Answer 1