In the C-3 zone, retail strip centers cannot exceed a Floor Area Ratio (FAR) of 0.30, and 1 parking space for every 200 square feet of building area is required. Your research shows no recent sales of land for retail development, but new retail strip centers have leased up in less than one year. You conclude that the Extraction Method using direct capitalization is the best way to estimate land value for a hypothetical shopping center.

The most recently built shopping centers in the market area have an anchor tenant that makes up 60% of the total square footage in the center. These anchor stores are renting for $15.00 per square foot, triple net. The remaining space is made up of small in-line retail spaces that rent for an average of $20.00 per square foot, triple net. Overall retail vacancy in the market is 10%. Because the leases are triple net the expenses are limited to a management fee equal to 5% of Effective Gross Income (EGI), and $0.20 per square foot for reserves.

You called the manager of a regional bank who tells you that current loan terms for shopping centers are as follows: 70% loan-to-value; 25 year amortization and a 4% interest rate. You call shopping center developers who tell you that they need an equity divided rate of at least 10% to justify new construction.

According to Marshall & Swift, shopping centers cost $100 per square foot to build and parking spaces cost $2,000 each.

Anchor Rent
In-Line Rent
Potential Gross Income
Vacancy & Collection Loss
Effective Gross Income
Management Fee
Reserves
Total Expenses
Net Operating Income
Cap Rate (Calculated below)
Value As Improved
Building Construction Cost
Parking Construction Cost
Demolition Cost
Implied Land Value

Band of Investment Calculation
Mortgage
Equity
Total