Question

You own a business that occupies a 50,000 SF building. You have no loan on the property. In order to recapitalize your business, you want to sell the building and lease it back from the new owner. Market conditions include a 10% vacancy, an 8% cap rate, rents of $6/SF with expenses of $2/SF (landlord responsibility).

1. What is your real estate worth?

2. If you complete a sale-leaseback transaction, what are your net funds that you would have received at the end of year 1?

Answer 1

Real estate worth =(Net occuping spcae *1-vacancy rate)*(rent per square feet+ expenses*/cap rate )

(50000*1-10%)*($6+$2/8%)=$45,00,000

Net funds that would received in the sale leaseback transaction =Amount received for the sale of building(real estate worth) -rent paid back to landlord .

Rent paid to landlord =50000*$6=300,000

Amount recieved for the sale of building has been calculated in the previous question as real estate worth .

Net funds =4500000-300000=4200000