Just for reading Estimate the market value of the following small office

Just for reading estimate the market value of the

This preview shows page 8 - 11 out of 12 pages.

Problem (5): Problem (5): Just for readingEstimate the market value of the following small office building. The property has 10,500 square feet of leasable space that was leased to a single tenant on January 1, four years ago. Terms of the lease call for rent payments of $9,525 per month for the first fiveyears, and rent payments of $11,325 per month for the next five years. The tenant must pay all operating expenses.During the remaining term of the lease, there will be no vacancy and collection losses; however, upon termination of the lease it is expected that the property will be vacant for three months. When the property is released under short-term leases, with tenants payingall operating expenses, a vacancy and collection loss allowance of 8 percent per year is anticipatedThe current market rental for properties of this type under triple net leases is $11 per square foot, and this rate has been increasing at a rate of 3 percent per year. The market discount rate for similar properties is about 11 percent, the "going-in" cap rate is about 9 percent, and terminal cap rates are typically 1 percentage point above going-in cap rates.Prepare a spreadsheet showing the rental income, expense reimbursements, NOIs, and thenet proceeds from the sale of the property at the end of an 8-year holding period. Then use the information provided to estimate the market value of the property. 0
Image of page 8
9 Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5 Yr. 6 Yr. 7 Yr. 8 Yr. 9 Contract Rent 114,30 0 135,90 0 135,90 0 135,90 0 135,900 135,90 0 Market Rent 115,50 0 118,96 5 122,53 4 126,21 0 129,996 133,89 6 137,913 142,05 0 146,31 1 Less: VC 0 0 0 0 0 0 34,478 11,364 11,705 Effective Gross Inc. 114,30 0 135,90 0 135,90 0 135,90 0 135,900 135,90 0 103,435 130,68 6 134,60 6 Less: Operating Exps 0 0 0 0 0 0 0 0 0 Net Operating Inc. 114,30 0 135,90 0 135,90 0 135,90 0 135,900 135,90 0 103,435 130,68 6 134,60 6 Sale price at the end of Yr. 8: = [NOI (yr9) / Terminal cap rate] = $134,606 / 0.10 = $1,346,060 Cash Flows: CF 1 = 114,300, CF 2 = 135,900, CF 3 = 135,900 , CF 4 = 135,900, CF 5 = 135,900, CF 6 = 135,900, CF 7 = 103,435, CF 8 = 1,476,746 (130,686+1,346,060) PV of Cash Flows @ 11 percent = $1,246,090
Image of page 9
10 Conceptual Questions
Image of page 10
Image of page 11

You've reached the end of your free preview.

Want to read all 12 pages?

  • Fall '08
  • Staff
  • Net Present Value, Generally Accepted Accounting Principles, noi

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture