Could anyone tell me where the year 3 and year6 new space build out come from? Thank you!

Review Exercises Case Study: Analysis of an Office Building Investment The subject sasmall multitenant office building with six tenants and company may or when itseases out. The landlord think one vocant suite. Leases in this market are typically when for five there is only a 25% chance of a renewal because he tenant ready years at a flatte, with the tenant paying the increases in expenses says it does not need all the space it has. The finish is standard over a base year. The base yaris established within the first year of Suite 210, comprising 5,000 square feet on the second floor is the case based on a percentage of o p enses divided by the ten leased to a real estate investment company for five years with four percentage of space. These we all service leases. The man years left. This space also has standard finish and features, and increasing by compounded annually the sa m ed 25 probability of because the con t ent an ice build beaty This lease is Suite 100 comprising 2.500 square feet, is leased to a computer $23.50 per square foot hardware distributor on a five par lease with two years lat. The fat rate is 562,500 per year ($25 per square foot per year. There is Suite 215 comprises 5,000 square feet on the second foor, and a highlikelihood of renewal for another five years. If the tenant is leased to a soft drink distributor for five years with only two as renews, the market rate should be applicable because the tenant en This space has standard finish. The tenant is fairly happy in the improvements (is) would be amortired with little up front expense. building but not happy with the configuration of the space. There This has better than finish and features and is a high hood the tenant wilt but major expenditures to te dobe which commands ase t Con reconfuse the sube will be needed sidering the lack of improvement penses the space should Because the s e fatte for several years, there is a fairy De renewed at the markette large amount of pass through income. The first year it should equal Suite 101.comprising 3,900 square feet, is leased to an electronic about $49,000 and increase by about 3 compounded each year. reproduction firm on a seven par lease at a fat rate of $103,350 Vacancy should be 5% for Years 1.2. and 6, and 10% for Years 3, 4, per year ($26.50 per square foot per year. This case has seven and 5 due to rollovers. The collection loss is estimated at only 1% per years left to run. This space also has better than ever finish and year because of the quality of the tenants. The suites with leases in features. This space is nicer and of the lobby as well, but the place during the lease period are shown in red in the reconstructed teatres, the stove been more so there will be tow up segment frontense these Expenses are listed in the Maste r ing by 3% per Suite 112 has 4.500 etadi vacant it should se Tenantroverents are a ction of lovers, and pro within a year to near $25.00 per square foot per year with ability of renewal Leasing commissions are generally t% of the total standard finishing. This space is assumed to be of average finish lease amount and the leasts are usually the years. No one in this at that rate. Tls with ave n ish cost about $20.00, allings market pays leasing commissions on rentals. The building will need considered. A new lease can be assumed to be for five years, and it $25,000 for a new roof in the second year, $35,000 for new HVAC will rol over at the market rate units in the third year, and $42.000 for parking lot resurfacing in the Suite 114.com 4,000 suare feet, is leased to a consumer that products manufacture on the ware hony one warto Discounts on properties in this are a ly between and The last 121.00 per square footer with only 9. The m o st used to estimate the evenin one year to a big increase in rent and probably some excenses the The mathematical to find te apropriate are anticipated. This company may or may not stay The probability discount factor is 11. The hosting period for this type of invest of renewal is about 25% mentis five toght years with some periods as short as three years. A Suite 205, comori 5,000 square feet on the second floor, is review of recent Sales found that were held for nearly five years leased to an auto manufacturer on a five years with four years All the blank spaces in the reconstructed operating statement remaining at a tate of $24.00 per square foot p shown on the following page can be filled in using the information ar This provided above. The Year 1 figures provided as a starting point Suggested Solutions to Review Exercises Case Study The reconstructed operating statement that follows is one possible solution: It is not the only solution 5,000 25,400 Sq. Ft. Leased Rate Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 2.500 2.500 25.00 62,500 62,500 66,307 66,307 66,307 66,307 Suite 100 3,900 3,900 Suite 101 26.50 103,350 103,350 103,350 103,350 103,350 103,350 Suite 112 4,600 0 25.00 115,000 115,000 115,000 115,000 115,000 133,317 Suite 114 4,000 4,000 21.00 84,000 100,000 100,000 100,000 100,000 100,000 Suite 205 5,000 5,000 24.00 120,000 120,000 120,000 120,000 140,689 140,689 Suite 210 5,000 5,000 23.50 125,000 125,000 125,000 125,000 140,689 140,689 Suite 215 5,000 22.00 110,000 110,000 132,613 132,613 132,613 132,613 Total >>> 30,000 84.67% $49,000 $50,470 Pass-through = $51,984 $53,544 $55,150 $56,804 Potential gross income = $768,850 $786,320 $814,253 $815,813 $853,796 $873,767 Estimated market (roll over) rate = $25.00 $25.75 $26.52 $27.32 $28.14 $28.98 Vacancy loss -6% .6% -11% 11% -11% -6% Effective gross income $722,719 $739,141 $724,685 $726,073 $759.879 $821,341 Expense Items (Rate of increase in expenses = 3.00%) All utilities $1.50/ occupied sq. ft. $42,750 $44,033 $42,966 $44,255 $45,583 $49,559 Management expense 5.00% of EGI $36,136 $36,957 $36,234 $36,304 $37,994 $41,067 Maintenance salary $0.50/sq. ft. $15,000 $15,450 $15,914 $16,391 $16,883 $17,389 Taxes, insurance, and licenses $1.25/sq. ft. $37,500 $38,625 $39,784 $40,977 $42,207 $43,473 Maintenance (snow, trash, etc.) $0.75/sq. ft. $22,500 $23,175 $23,870 $24,586 $25,324 $26,084 Contract cleaning, etc. $1.50/ occupied sq. ft. $42.750 $44,033 $42,966 $44,255 $45,583 $49,559 Supplies (HVAC, janitorial, etc.) $0.50/sq. ft. $15,000 $15,450 $15,914 $16,391 $16,883 $17,389 Total expenses from operations $211,636 $217,723 $27,648 $223,160 $230,457 $244,520 Operating expenses per sq. ft. $7.05 $7.26 $7.25 $7.44 $7.68 $8.15 Build-out and leasing expenses New space build-out $92,000 $60,000 $112,500 $0 $150,000 $46,000 Leasing commissions $23,000 $20,000 $39,784 $0 $56,275 SO Capital replacements (HVAC, roof) $0 $25,000 $35,000 $0 $42.000 $0 Total build-out/reserves expense $115,000 $105,000 $187,284 $0 $248,275 $46,000 Build-out per sq. ft GLA $3.83 $3.50 $6.24 $0.00 $8.28 $1.53 Total all expenses $326,636 $322.722 $404,932 $223,160 $478,731 $290,520 All expenses per sq.ft $10.89 $10.76 $13.50 $7.44 $15.96 $9.68 Income overall (1) $396,083 $416,419 $319,753 $502,913 $281,147 $530,822 The reversion of the property is estimated by applying a terminal cap rate of 9% to the last year's income less selling expenses Reversion of property = $5,485,157 Cash flows with reversion $396,083 $416,419 $319,753 $502,913 $5,766,305 Discounted at 8.0% 0.925926 0.857339 0.793832 0.735030 0.680583 Value Present value $366,744 $357,012 $253,831 $369,656 $3,924,450 $5,271,693 Discounted at 9.0% 0.917431 0.841680 0.772183 0.708425 0.649931 Value Present value $363,379 $350,491 $246,908 $356,277 $3,747,703 $5,064,758 Year 6 NOI is used to calculate the reversion at the end of Year 5. Case Study The reconstructed operating statement that follows is one possible solution; it is not the only solution Sq. Ft. Leased Rate Year 1 Year 2 Year 3 Year 4 Year 5 Year 8 Suite 100 2,500 2,500 25.00 62,500 62,500 66,307 66,307 66,307 66,307 Suite 101 3,900 3,900 26.50 103,350 103,350 103,350 103,350 103,350 103,350 Suite 112 4,600 0 25.00 115,000 115,000 115,000 115,000 115,000 133,317 Suite 114 4,000 4,000 21.00 84,000 100.000 100,000 100,000 100.000 100,000 Suite 205 5,000 5,000 24.00 120,000 120.000 120,000 120,000 140,689 140,689 Suite 210 5,000 5,000 23.50 125,000 125,000 125,000 125,000 140,689 140,689 Suite 215 5,000 5,000 22.00 110,000 110,000 132,613 132,613 132,613 132,613 Total >>> 30,000 25.400 84.67% Pass-through $49,000 $50,470 $51,984 $53,544 $55,150 $56,804 Potential gross income $768,850 $786,320 $814,253 $815,813 $853,796 $873,767 Estimated market (roll over) rate= $25.00 $25.75 $26.52 $27.32 $28.14 $28.98 Vacancy loss -6% - 11% -11% 11% -6% Effective gross income $722.719 $739,141 $724,685 $726,073 $759.879 $821,341 Expense Items (Rate of increase in expenses = 3.00%) All utilitie $1.50/ occupied sq. ft. $42,750 $44,033 $42.966 $44,255 $45,583 $49,559 Management expense 5.00% of EGI $36,136 $36,957 $36.234 $36,304 $37.994 $41,067 Maintenance salary $0.50/sq.ft $15,000 $15,450 $15,914 $16,391 $16.883 $17.389 Taxes, insurance, and licenses $1.25/sq. ft. $37,500 $38,625 $39.784 $40,977 $42.207 $43.473 Maintenance (snow, trash, etc.) $0.75/sq.ft $22,500 $23,175 $23,870 $24,586 $25,324 526,084 Contract cleaning, etc. $1.50/occupied sq. ft. $42,750 $44,033 $42,966 $44,255 $45,583 $49,559 Supplies (HVAC, janitorial, etc.) $0.50/sq.ft $15,000 $15,450 $15,914 $16,391 $16.883 $17,389 Total expenses from operations $211,636 $217,723 $27.648 $223,160 $230,457 $244,520 Operating expenses per sq.ft $7.05 $7.26 $7.25 $7.44 $7.68 $8.15 Build-out and leasing expenses New space build-out $92,000 $60,000 $112,500 $0 $150,000 $46,000 Leasing commissions $23,000 $20,000 $39.784 $0 $56,275 $0 Capital replacements (HVAC, roof) $0 $25,000 $35,000 $0 $42.000 $0 Total build-out/reserves expense $115,000 $105,000 $187.284 $0 $248,275 $46,000 Build-out per sq. ft. GLA $3.83 $3.50 $6.24 $0.00 $8.28 $1.53 Total all expenses $326,636 $322,722 $404,932 $223,160 $478,731 $290,520 All expenses per sq.ft $10.89 $10.76 $13.50 $7.44 $15.96 $9.68 Income overall (1) $396,083 $416,419 $319,753 $502,913 $281.147 $530,822 The reversion of the property is estimated by applying a terminal cap rate of 9% to the last year's income less selling expenses Reversion of property = $5,485,157 Cash flows with reversion $396,083 $416,419 $319,753 $502,913 $5,766,305 Discounted at 8.0% 0.925926 0.857339 0.793832 0.735030 0.680583 Value Present value $366,744 $357,012 $253,831 $369,656 $3,924,450 $5,271,693 Discounted at 9.0% 0.917431 0.841680 0.772183 0.708425 0.649931 Value Present value $363,379 $350,491 $246,908 $356,277 $3,747,703 $5,064,758 Wear 6 NON is used to calculate the reversion at the end Review Exercises Case Study: Analysis of an Office Building Investment The subject sasmall multitenant office building with six tenants and company may or when itseases out. The landlord think one vocant suite. Leases in this market are typically when for five there is only a 25% chance of a renewal because he tenant ready years at a flatte, with the tenant paying the increases in expenses says it does not need all the space it has. The finish is standard over a base year. The base yaris established within the first year of Suite 210, comprising 5,000 square feet on the second floor is the case based on a percentage of o p enses divided by the ten leased to a real estate investment company for five years with four percentage of space. These we all service leases. The man years left. This space also has standard finish and features, and increasing by compounded annually the sa m ed 25 probability of because the con t ent an ice build beaty This lease is Suite 100 comprising 2.500 square feet, is leased to a computer $23.50 per square foot hardware distributor on a five par lease with two years lat. The fat rate is 562,500 per year ($25 per square foot per year. There is Suite 215 comprises 5,000 square feet on the second foor, and a highlikelihood of renewal for another five years. If the tenant is leased to a soft drink distributor for five years with only two as renews, the market rate should be applicable because the tenant en This space has standard finish. The tenant is fairly happy in the improvements (is) would be amortired with little up front expense. building but not happy with the configuration of the space. There This has better than finish and features and is a high hood the tenant wilt but major expenditures to te dobe which commands ase t Con reconfuse the sube will be needed sidering the lack of improvement penses the space should Because the s e fatte for several years, there is a fairy De renewed at the markette large amount of pass through income. The first year it should equal Suite 101.comprising 3,900 square feet, is leased to an electronic about $49,000 and increase by about 3 compounded each year. reproduction firm on a seven par lease at a fat rate of $103,350 Vacancy should be 5% for Years 1.2. and 6, and 10% for Years 3, 4, per year ($26.50 per square foot per year. This case has seven and 5 due to rollovers. The collection loss is estimated at only 1% per years left to run. This space also has better than ever finish and year because of the quality of the tenants. The suites with leases in features. This space is nicer and of the lobby as well, but the place during the lease period are shown in red in the reconstructed teatres, the stove been more so there will be tow up segment frontense these Expenses are listed in the Maste r ing by 3% per Suite 112 has 4.500 etadi vacant it should se Tenantroverents are a ction of lovers, and pro within a year to near $25.00 per square foot per year with ability of renewal Leasing commissions are generally t% of the total standard finishing. This space is assumed to be of average finish lease amount and the leasts are usually the years. No one in this at that rate. Tls with ave n ish cost about $20.00, allings market pays leasing commissions on rentals. The building will need considered. A new lease can be assumed to be for five years, and it $25,000 for a new roof in the second year, $35,000 for new HVAC will rol over at the market rate units in the third year, and $42.000 for parking lot resurfacing in the Suite 114.com 4,000 suare feet, is leased to a consumer that products manufacture on the ware hony one warto Discounts on properties in this are a ly between and The last 121.00 per square footer with only 9. The m o st used to estimate the evenin one year to a big increase in rent and probably some excenses the The mathematical to find te apropriate are anticipated. This company may or may not stay The probability discount factor is 11. The hosting period for this type of invest of renewal is about 25% mentis five toght years with some periods as short as three years. A Suite 205, comori 5,000 square feet on the second floor, is review of recent Sales found that were held for nearly five years leased to an auto manufacturer on a five years with four years All the blank spaces in the reconstructed operating statement remaining at a tate of $24.00 per square foot p shown on the following page can be filled in using the information ar This provided above. The Year 1 figures provided as a starting point Suggested Solutions to Review Exercises Case Study The reconstructed operating statement that follows is one possible solution: It is not the only solution 5,000 25,400 Sq. Ft. Leased Rate Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 2.500 2.500 25.00 62,500 62,500 66,307 66,307 66,307 66,307 Suite 100 3,900 3,900 Suite 101 26.50 103,350 103,350 103,350 103,350 103,350 103,350 Suite 112 4,600 0 25.00 115,000 115,000 115,000 115,000 115,000 133,317 Suite 114 4,000 4,000 21.00 84,000 100,000 100,000 100,000 100,000 100,000 Suite 205 5,000 5,000 24.00 120,000 120,000 120,000 120,000 140,689 140,689 Suite 210 5,000 5,000 23.50 125,000 125,000 125,000 125,000 140,689 140,689 Suite 215 5,000 22.00 110,000 110,000 132,613 132,613 132,613 132,613 Total >>> 30,000 84.67% $49,000 $50,470 Pass-through = $51,984 $53,544 $55,150 $56,804 Potential gross income = $768,850 $786,320 $814,253 $815,813 $853,796 $873,767 Estimated market (roll over) rate = $25.00 $25.75 $26.52 $27.32 $28.14 $28.98 Vacancy loss -6% .6% -11% 11% -11% -6% Effective gross income $722,719 $739,141 $724,685 $726,073 $759.879 $821,341 Expense Items (Rate of increase in expenses = 3.00%) All utilities $1.50/ occupied sq. ft. $42,750 $44,033 $42,966 $44,255 $45,583 $49,559 Management expense 5.00% of EGI $36,136 $36,957 $36,234 $36,304 $37,994 $41,067 Maintenance salary $0.50/sq. ft. $15,000 $15,450 $15,914 $16,391 $16,883 $17,389 Taxes, insurance, and licenses $1.25/sq. ft. $37,500 $38,625 $39,784 $40,977 $42,207 $43,473 Maintenance (snow, trash, etc.) $0.75/sq. ft. $22,500 $23,175 $23,870 $24,586 $25,324 $26,084 Contract cleaning, etc. $1.50/ occupied sq. ft. $42.750 $44,033 $42,966 $44,255 $45,583 $49,559 Supplies (HVAC, janitorial, etc.) $0.50/sq. ft. $15,000 $15,450 $15,914 $16,391 $16,883 $17,389 Total expenses from operations $211,636 $217,723 $27,648 $223,160 $230,457 $244,520 Operating expenses per sq. ft. $7.05 $7.26 $7.25 $7.44 $7.68 $8.15 Build-out and leasing expenses New space build-out $92,000 $60,000 $112,500 $0 $150,000 $46,000 Leasing commissions $23,000 $20,000 $39,784 $0 $56,275 SO Capital replacements (HVAC, roof) $0 $25,000 $35,000 $0 $42.000 $0 Total build-out/reserves expense $115,000 $105,000 $187,284 $0 $248,275 $46,000 Build-out per sq. ft GLA $3.83 $3.50 $6.24 $0.00 $8.28 $1.53 Total all expenses $326,636 $322.722 $404,932 $223,160 $478,731 $290,520 All expenses per sq.ft $10.89 $10.76 $13.50 $7.44 $15.96 $9.68 Income overall (1) $396,083 $416,419 $319,753 $502,913 $281,147 $530,822 The reversion of the property is estimated by applying a terminal cap rate of 9% to the last year's income less selling expenses Reversion of property = $5,485,157 Cash flows with reversion $396,083 $416,419 $319,753 $502,913 $5,766,305 Discounted at 8.0% 0.925926 0.857339 0.793832 0.735030 0.680583 Value Present value $366,744 $357,012 $253,831 $369,656 $3,924,450 $5,271,693 Discounted at 9.0% 0.917431 0.841680 0.772183 0.708425 0.649931 Value Present value $363,379 $350,491 $246,908 $356,277 $3,747,703 $5,064,758 Year 6 NOI is used to calculate the reversion at the end of Year 5. Case Study The reconstructed operating statement that follows is one possible solution; it is not the only solution Sq. Ft. Leased Rate Year 1 Year 2 Year 3 Year 4 Year 5 Year 8 Suite 100 2,500 2,500 25.00 62,500 62,500 66,307 66,307 66,307 66,307 Suite 101 3,900 3,900 26.50 103,350 103,350 103,350 103,350 103,350 103,350 Suite 112 4,600 0 25.00 115,000 115,000 115,000 115,000 115,000 133,317 Suite 114 4,000 4,000 21.00 84,000 100.000 100,000 100,000 100.000 100,000 Suite 205 5,000 5,000 24.00 120,000 120.000 120,000 120,000 140,689 140,689 Suite 210 5,000 5,000 23.50 125,000 125,000 125,000 125,000 140,689 140,689 Suite 215 5,000 5,000 22.00 110,000 110,000 132,613 132,613 132,613 132,613 Total >>> 30,000 25.400 84.67% Pass-through $49,000 $50,470 $51,984 $53,544 $55,150 $56,804 Potential gross income $768,850 $786,320 $814,253 $815,813 $853,796 $873,767 Estimated market (roll over) rate= $25.00 $25.75 $26.52 $27.32 $28.14 $28.98 Vacancy loss -6% - 11% -11% 11% -6% Effective gross income $722.719 $739,141 $724,685 $726,073 $759.879 $821,341 Expense Items (Rate of increase in expenses = 3.00%) All utilitie $1.50/ occupied sq. ft. $42,750 $44,033 $42.966 $44,255 $45,583 $49,559 Management expense 5.00% of EGI $36,136 $36,957 $36.234 $36,304 $37.994 $41,067 Maintenance salary $0.50/sq.ft $15,000 $15,450 $15,914 $16,391 $16.883 $17.389 Taxes, insurance, and licenses $1.25/sq. ft. $37,500 $38,625 $39.784 $40,977 $42.207 $43.473 Maintenance (snow, trash, etc.) $0.75/sq.ft $22,500 $23,175 $23,870 $24,586 $25,324 526,084 Contract cleaning, etc. $1.50/occupied sq. ft. $42,750 $44,033 $42,966 $44,255 $45,583 $49,559 Supplies (HVAC, janitorial, etc.) $0.50/sq.ft $15,000 $15,450 $15,914 $16,391 $16.883 $17,389 Total expenses from operations $211,636 $217,723 $27.648 $223,160 $230,457 $244,520 Operating expenses per sq.ft $7.05 $7.26 $7.25 $7.44 $7.68 $8.15 Build-out and leasing expenses New space build-out $92,000 $60,000 $112,500 $0 $150,000 $46,000 Leasing commissions $23,000 $20,000 $39.784 $0 $56,275 $0 Capital replacements (HVAC, roof) $0 $25,000 $35,000 $0 $42.000 $0 Total build-out/reserves expense $115,000 $105,000 $187.284 $0 $248,275 $46,000 Build-out per sq. ft. GLA $3.83 $3.50 $6.24 $0.00 $8.28 $1.53 Total all expenses $326,636 $322,722 $404,932 $223,160 $478,731 $290,520 All expenses per sq.ft $10.89 $10.76 $13.50 $7.44 $15.96 $9.68 Income overall (1) $396,083 $416,419 $319,753 $502,913 $281.147 $530,822 The reversion of the property is estimated by applying a terminal cap rate of 9% to the last year's income less selling expenses Reversion of property = $5,485,157 Cash flows with reversion $396,083 $416,419 $319,753 $502,913 $5,766,305 Discounted at 8.0% 0.925926 0.857339 0.793832 0.735030 0.680583 Value Present value $366,744 $357,012 $253,831 $369,656 $3,924,450 $5,271,693 Discounted at 9.0% 0.917431 0.841680 0.772183 0.708425 0.649931 Value Present value $363,379 $350,491 $246,908 $356,277 $3,747,703 $5,064,758 Wear 6 NON is used to calculate the reversion at the end