Question

A suburban office/warehouse building is leased to a single tenant on a modified gross lease. Given...

A suburban office/warehouse building is leased to a single tenant on a modified gross lease.

Given the following information, what is the value of the building? The cap rate is 7%.

28,000 SF shell at 38¢ /SF per month

4,000 SF office within shell at 70¢ /SF per month surcharge

PGI

Vacancy & Credit Loss (5%)

EGI

Operating Expenses (paid by owner)

Taxes $2,400 / year

Insurance $2,000 / year

Reserves 20¢ / SF

Misc. 2% of EGI

NOI (Io)

Market Value:

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Answer #1
Particulars Working Amount
PGI (Potential Gross Income) See Note 1 161,280
Less: Vacancy & Credit Loss (5%) =5% of 161280 -8064
EGI (Effective Gross Income) 153216
Taxes 2,400 -2,400
Insurance 2,000 -2,000
Reserves =0.20*(28,000+4,000) -6400
Miscelleanous Expense =2% of 153216 -3064.3
NOI (A) 139351.7
Cap Rate(B) 7.00%
Market Value = NOI/Cap Rate =139351.7/7% $1,990,738
Working
Note 1 : Potential Gross Income
Shell(28000 SF @38 cent/SF) = 28000*0.38*12 = 127680
Office( 4000 SF @70 cent/SF) = 4000*0.70*12 = 33600
Total PGI = 127680+33600= 161,280
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