Case Study: Westgate Shopping Center Westgate Shopping Center is a 400,000 square foot neighborhood strip center. An investor is considering purchasing the property on August 1, 2010, hold if for five years and expects to sell it based on a cap rate of 7.5% applied to end-of-the year 5 net operating income. Selling costs would be 3% of the sale price. He hopes to get a 12% rate of return over the life of the investment. The purchase price is $3,000,000. Assumptions: Inflation over the next 5 years is expected to be 2% per year The vacancy rate for similar shopping centers is 5% Credit loss is projected at 2% Expenses are as follows: o Real estate taxes are $55,000 the first year increasing 2.5% / year O Insurance is $.40 per / foot increasing 3% / year o Common area maintenance is $2.25 / square foot increasing 2% / year Management fee is 4% of effective gross income Rent roll: Tenant A O Square feet: O Term: Base rent: Expenses: o Expiry: Base rent: Term: Expenses: 50,000 square feet July 1, 2005 June 30, 2015 $12 / square foot Taxes, Insurance, Common Area Net basis $12 / square foot increasing at 3% / year 5 years Net basis Case Study: Westgate Shopping Center Westgate Shopping Center is a 400,000 square foot neighborhood strip center. An investor is considering purchasing the property on August 1, 2010, hold if for five years and expects to sell it based on a cap rate of 7.5% applied to end-of-the year 5 net operating income. Selling costs would be 3% of the sale price. He hopes to get a 12% rate of return over the life of the investment. The purchase price is $3,000,000. Assumptions: Inflation over the next 5 years is expected to be 2% per year The vacancy rate for similar shopping centers is 5% Credit loss is projected at 2% Expenses are as follows: o Real estate taxes are $55,000 the first year increasing 2.5% / year O Insurance is $.40 per / foot increasing 3% / year o Common area maintenance is $2.25 / square foot increasing 2% / year Management fee is 4% of effective gross income Rent roll: Tenant A O Square feet: O Term: Base rent: Expenses: o Expiry: Base rent: Term: Expenses: 50,000 square feet July 1, 2005 June 30, 2015 $12 / square foot Taxes, Insurance, Common Area Net basis $12 / square foot increasing at 3% / year 5 years Net basis