2. You are an appraiser, and your task is to appraise an office building. You are deciding to use the income method. The building has three floors. The ground floor features a big shopping area of 6,000 sq ft. The second floor is divided in seven offices of 800 sq ft. each and one utilities room of 400 sq. ft. (you use it for housekeeping supply, etc and are not able to offer it on the rental market), whereas the third floor houses two big office areas of 3,000 sq. ft. each. The market rent is $8/month per square foot for the office space, while the complete first level is rented to a major supermarket chain at $30,000/month in a multiyear contract extending over the next 10 years. Expenses for various insurances, property management, and standard maintenance add up to $30,000 per month, while 10% of gross profit are set aside for major renovations in the future. A parking lot surrounds the building, and the supermarket pays a fee of $3,000 per month to use it. You expect that each unit within the second and third floor will be vacant once throughout the upcoming year for one month. You further know from experience that approximately 3% of payable rent is not paid on average. (30 Points)

a. Calculate the PGI (on a yearly basis) (3 Points)

b. Calculate the EGI (on a yearly basis) [If you have no result from a), you may use $1,500,000 to continue] (6 Points)

c. Calculate NOI (on a yearly basis) [If you have no result from b), you may use $1,400,000 to continue] (4 Points)

d. Which additional information would you need to calculate from NOI the value of the property through direct capitalization with the help of cap rates? Please describe how you would calculate the cap rate in reality and indicate the necessary information. (6 Points)

e. Assume that you had all information described in d) and calculated a cap rate of exactly 0.09. Please calculate the value of the building. [If you have no result from c), you may use $1,000,000 to continue] (3 Points)

f. You are expecting that market rates will increase by 3% per year and the contract with the shop on the ground floor is automatically adapting to changes in market rent increases. As every unit is vacant for one month per year, you can assume that each renter stays for only 11 months and market rents are used every year. Costs are growing proportionally with rent increases. You expect an internal interest rate of 5%. Investors in the area are typically holding properties for three years and the cap rate from e is expected to remain constant over time. Calculate the value through the discounted cash flow analysis. (6 Points)

g. You assume both approaches to be equally valid. Which value would you communicate as the appraised value? [If you have no result from e), you may use $11,000,000, if you have no result from f) you can use $13,000,000 to continue] (2 Points)