You consider buying an investm
You consider buying an investment commercial property in NewYork. This property is 100% occupied and has three tenants, whoseleases have 10 years remaining until the end of the lease term. 1sttenant occupies 5,000 SF and pays the base rent of $10,000/month.2nd tenant occupies 1,500 SF, paying the base rent of $2,500/month.3rd tenant occupies 3,000 SF, paying the base rent of $5,000/month.All three tenants have the absolute Triple Net lease and 3% annualincrease in the base rent. During the due diligence, you’ve foundout that the building requires an annual payment of $9,000insurance, $35,000 property tax, and $11,000 common areamaintenance (CAM) expenses.
A) What is the base rent and additional rent (i.e.,insurance, tax, & CAM) per square foot (PSF)
B) If similar properties in the area have been soldat an average of 6.5% CAP, what would be the estimated value ofthis property using the CAP approach?
Answer:
| Anticipated holdingperiod: | 10 | (may be from 2 to 10 years) | ||||||||||||
| Potential Gross Rentinputs: | Units | Monthly Rent | Input in yellowcells only. | |||||||||||
| Type1: | Two-Bedroom | 5,000 | $5,000 | (input for purchase price ison the Sale worksheet) | ||||||||||
| Type2: | One-Bedroom | 1,500 | $2,500 | |||||||||||
| Type3: | Studio Units | 3,000 | $5,000 | |||||||||||
| Square Feet | Annual Rent / SF | |||||||||||||
| Non-residential input: | Annual gross rentestimate: | $525,000,000 | ||||||||||||
| 0* | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | |||||
| Increase in rents: | 3.0% | 3.0% | 3.0% | 3.0% | 3.0% | 3.0% | 3.0% | 3.0% | 3.0% | 3.0% | ||||
| (to the following year) | *fill in this box only if monthly rents above are current and needto be adjusted for the first year of operations | |||||||||||||
| Potential GrossRent Estimate for first year: | $540,750,000 | |||||
| Utilities(common area) | $ 11,000 | 11,000 | ||||||||||
| Insurance | $ 9,000 | 9,000 | ||||||||||
| Supplies | $ – | 0 | ||||||||||
| Advertising | $ – | 0 | ||||||||||
| Maintenance & Repairs | $ – | 0 | ||||||||||
| Property Taxes | $ 35,000 | 35,000 | 55,000 | |||||||||
| Netrent required | $ 540,805,000 | |||||||||||
| Year Per SF | Month (per SF) | |
| Base rent | $56,921.05 | $4,743.42 |
| Additionalrent | $ 5.79 | $ 0.48 |
Answer B)
| Operating Forecast | ||||||||||
| CAP rate | 6% | |||||||||
| Rent increamentrate | 3% | |||||||||
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | |
| Potential GrossRent | 540750000 | 556972500 | 573681700 | 590892200 | 608619000 | 626877600 | 645683900 | 665054400 | 685006000 | 705556200 |
| Other Income | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Effective GrossIncome | 540750000 | 556972500 | 573681700 | 590892200 | 608619000 | 626877600 | 645683900 | 665054400 | 685006000 | 705556200 |
| OperatingExpenses | ||||||||||
| Utilities(commonArea) | 11000 | 11000 | 11000 | 11000 | 11000 | 11000 | 11000 | 11000 | 11000 | 11000 |
| Insurance | 9000 | 9000 | 9000 | 9000 | 9000 | 9000 | 9000 | 9000 | 9000 | 9000 |
| PropertyTaxes | 35000 | 35000 | 35000 | 35000 | 35000 | 35000 | 35000 | 35000 | 35000 | 35000 |
| TotalExpenses | 55000 | 55000 | 55000 | 55000 | 55000 | 55000 | 55000 | 55000 | 55000 | 55000 |
| Net OperatingIncome | 540695000 | 556917500 | 573626700 | 590837200 | 608564000 | 626822600 | 645628900 | 664999400 | 684951000 | 705501200 |
| Discounted Valueof Income | 510089622.6 | 495654592.4 | 481628038.6 | 467998402.1 | 454754422.7 | 441885198.9 | 429380092.7 | 417228850.5 | 405421444.5 | 393948185.2 |
| Total value | 4497988850 |
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