Question

You are considering an investment in a 250,000 sq ft office building. Market rent in this area is currently $25/sq ft and is expected to increase at a rate of 5% annually into the foreseeable future. Comparable buildings in this area have a 6% vacancy rate. Expenses are currently $13/sqft and have been increasing by $1/sqft annually. Typically half of the operating expenses are recovered from tenants. When getting into a project of this type you generally consider a 5-year holding period and look for a 12% rate of return.

Create the pro forma cash flow statement for this investment.

Answer 1

Given 6% vacancy rate, 94% is the ocupancy rate and accordingly rent receivable will be calculated for 94% only.

Following Cash flow statement can be attained given the information -

pro forma cash flow statement(Amount in $)
Particulars	Year 1	Year 2	Year 3	Year 4	Year 5
Annual Rent Receivable(250000x25x94%) - increased by 5% annually	5875000	6168750	6477188	6801047	7141099
Less- Operating Expenses incurred(13 x 250000) increased by 1 $ annually	3250000	3500000	3750000	4000000	4250000
Add - Expenses recovered from tenants(50% of operating expenses)	1625000	1750000	1875000	2000000	2125000
Net Benefit	4250000	4418750	4602188	4801047	5016099