Consider an office building that has 50,000 square feet. The rental rate is $1 per square foot per MONTH. Operating expenses are 40% of revenue (a standard assumption). The current cap rate on office buildings in Orange County is 6%.

What is the expected sale price for this building?

If office rents are expected to remain flat, what is the expected rate of return on this investment? I

If office rents are expected to grow by 1% per year over the next few years, what is the expected rate of return?

You could, after buying this building, put in $2,000,000 worth of improvements that would allow you to raise the rent by 10% (with zero growth). What would the sale price be, after these improvements? (Note that I am not asking you if this is a good idea.)