MICROSOFT EXCEL WORK

Valuing Commercial Real Estate

Glades Properties is a limited partnership formed with the express purpose of investing in commercial real estate. The firm is currently considering the acquisition of an office building that we refer to simply as building B. Building B is very similar to building A, which recently sold for $36,960,000. Glades has gathered general information about the two buildings, including valuation information for building A:

Buildings A and B are similar in size (80,000 and 90,000 square feet, respectively). However, the two buildings differ both in maintenance costs ($23 and $30 per square foot) and rental rates ($100 versus $120 per square foot). At this point, we do not know why these differences exist. Nonetheless, the differences are real and should somehow be accounted for in the analysis of the value of building B using data based on the sale of building A. Building A sold for $462 per square foot, or $36,960,000. This reflects a sales multiple of six times the buildings net operating income (NOI) of $6,160,000 per year and a capitalization rate of 16.67%.

Notes: Please follow the sequence of the labelling to complete the analysis. Valuation analysis Value = NOI/ (cap rate of NOI) = Rent / (cap rate of Rent) - Maintenance/(Cap rate of maintenance) Building Operating information Total Total size Rent Maintenance Net operating income (NOI) Property value A 80,000.00 $8,000,000 1,840,000.00 $6,160,000 36,960,000.00 B 90,000.00 $10,800,000 2,700,000.00 $8,100,000 to solve per sqft Rent Maintenance Property value $100 23 462.00 $120 30 to solve Pricing, using multiple of value sqft ?? ?? ?? Value of A Size of A Solve the price/sqft for A Apply the price/sqfr of A to B Size of B Value of B (estimate) Given Given