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1. An office property with 60,000 square feet of rentable space is expected to rent for $45 per square foot in the coming year. Rent

1. An office property with 60,000 square feet of rentable space is expected to rent for $45 per square foot in the coming year. Rent is expected to decline 3 percent per year over a projected holding period of seven years. Vacancy will be at 7.5 percent, and the operating expense ratio (based on effective gross income) will be at 35 percent. The property is expected to appreciate at the rate of 2 percent per year. It will be financed using 80 percent debt at an interest rate of 8 percent, amortized over 15 years with monthly payments. Equity investors expect an 15 percent before tax yield. What is the value of this property? HINT: Use the Finance-Explicit Model.

2. A small shopping center is expected to produce net operating income of $23,880 in year 1. You expect NOI to increase by 4 percent per year over an expected holding period of seven years. Property value is expected to increase by 3 percent per year. The discount rate is 10 percent. Assume there will be no costs of sale. Estimate the value of the shopping center. HINT: Use the Net Operating Income and Net Selling Price Model.

3. First-year NOI for a long-term net lease is expected to be $60,000. Rent is escalating at a rate of 4 percent per year, but there is a two-year period between adjustments. Thus, the income for years 1 and 2 will be $60,000, increasing to $60,000 (1+.04)2 = $64,896 in years 3 and 4, and so on. The discount rate is 11 percent. Assuming beginning-of-year payments, estimate the value of the leased fee.

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