In class, we looked at 1419 Eight Ave. This is a mixed use walk up building with retail on the ground floor and for-rent residential units above. The property measures 12,068 SF. Total revenues are 548,352 per year and total operating expenses are 202,623 per year. Residential revenues are 452,352 and retail revenues are 96.000 per year. Assume that the retail space occupies 18% of the total square footage and that operating expenses are allocated between the retail and the residential uses based on SF. The property is for sale and you are trying to value it.

The broker assumes that the appropriate cap rate for this building is 4.61% and came up with a value of $7.5M.

You think that 4.61% is an aggesive cap rate. You also believe that retail is riskier than residential and warrants a higher cap rate. If you deployed the sum of the parts method to value the property and assumed that 4.75% was the appropriate cap rate for the residential, 7.25% was the appropriate cap rate for the retail cash flows, and expenses were allocated based on square feet, what total value in $M would you derive for the property?