In the C-3 zone, office buildings can be up to three stories in height and cannot exceed a Floor Area Ratio (FAR) of 0.40. 1 parking space for every 250 square feet of building is also required.

Your research shows no recent sales of land for office development, but several buildings were recently completed and leased up. Due to the lack of land sales, you determine that a land value can be estimated using the Extraction Method.

Your research shows that Market rent is $22.00 per square foot, gross plus utilities, and you estimate stabilized vacancy at 10%. Expenses are about $10.00 per square foot. After interviewing local office brokers you conclude that a building on the subject property will take two years to lease up to stabilized occupancy. You expect occupancy to be 50% in Year 1 and 90% (stabilized) in Year 2 and beyond. Market rent, stabilized vacancy and expenses are all expected to remain flat.

You decide that a two year Discounted Cash Flow Analysis is the best way to estimate the Net Present Value (NPV) of a hypothetical office building. The reversion would be based on the 3^rd Years Net Operating Income. Surveys indicate that a reversion capitalization rate of 7% and a discount rate of 8% are reasonable.

According to Marshall & Swift cost service, average quality office buildings cost $100 per square foot to build and parking spaces cost $2,000 each.

	Year 1	Year 2	Year 3
Building Square Feet
Market Rent
Potential Gross Income
Vacancy
Effective Gross Income
Expenses
Net Operating Income
Reversion Cap Rate
Reversion
Annual Cash Flow
Net Present Value As Improved
Building Construction Cost
Parking Construction Cost
Demolition Cost
Implied Land Value