Question

An appraiser forecasts for the “Pawnee’s Dining Building” and provides the following forecasts: The building consists...

An appraiser forecasts for the “Pawnee’s Dining Building” and provides the following forecasts:

  • The building consists of 2 floors with the following (6) properties:
    • 1st floor – (3) fine dining restaurants:
      • (1) - Charles Mulligan’s Steakhouse, renting for $3750/month
      • (2) - Tom’s Bistro, each renting for $2000/month
    • 2nd floor – (1) bar/lounge and (2) fast food joints (same company)
      • (1) - Snakehole Lounge - renting for $3500/month
      • (2) - Paunch Burgers (fast food), each renting for $1250/month
  • Vacancy and Collection Losses: 7% per year
  • Miscellaneous Income: $1,450
  • Operating expenses: 20% per year
  • Capital expenditures: 6% per year

Estimate the following for the Pawnee’s Dining Building. Round your answers to the nearest thousand. Answers should only contain numbers. Do not include signs, symbols or units (i.e do not include $ or %). Commas are not necessary

  1. What is the Potential Gross Income (PGI) = $

  2. What is the Effective Gross Income (EGI) = $

  3. What is the Net Operating Income (NOI) = $

  4. Suppose the average overall capitalization rate for the comparable properties is 7.65%. What is the indicated value using the cap rate? (Hint: Use the rounded NOI to calculate the value and do not round the cap rate).

    Indicated Value (Using cap rate) = $

  5. Now suppose this is a small income-producing property and the average Effective Gross Income Multiplier (EGIM) for the comparable is 8.64. What is the indicated value using the EGIM?

Indicated Value (Using cap rate) = $

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Homework Answers

Answer #1
Particulars Formula Amount
1st Floor
Charles Mulligan 3750*12 45000
Tom's Bistro (2) 2*2000*12 48000
2nd Floor
Snakehole Lounge 3500*12 42000
Paunch Burgers (2) 2*1250*12 30000
Potential Gross Income (PGI) Total 165000
Add: Miscellaneous Income 1450
Less: Vacancy & Collection Losses 165000*7% 11550
Effective Gross Income 154900
Less : Operating Expenses 165000*20% 33000
Net Operating Income 121900

d. Indicated Value

Capital Expenditures = 165000 * 6% = 9900

Annual Cashflows = 121900 - 9900 = 112000

Capitalization Rate = 7.65%

Indicated Value = Present Value of perpetuity = Cashflows / Rate

= 112000 / 7.65%

Indicated Value of the Building = 1464052

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