On Jan 1, 2020, you purchased a fully-occupied, single-tenant, 10,000 square foot industrial building for $2 million dollars. You have calculated that when the building is fully occupied you pay $2,000 each month in expenses. These expenses are 20% fixed. When the building is occupied, the tenant reimburses you for all expenses.

Your tenants lease expires on December 31, 2023. When the lease expires, the tenant has the option to renew. You expect the tenant to renew with a 65% probability. From 2020-2023 the tenant pays $1.50/square foot per month in base rent.

• If the tenant renews on Jan 1, 2024:
  • He will pay $1.50/square foot per month in base rent.
  • He will require tenant improvements of $3/ square foot (paid immediately)
  • His leasing agent will require payment of 2% of twelve months of rent (paid immediately)
• If the tenant does not renew on Jan 1, 2024
  • It will take you 4 months to find a new tenant
  • The new tenant will pay $1.60/square foot per month in base rent.
  • The new tenant will require tenant improvements of $5/ square foot (paid immediately)
  • The new tenants leasing agent will require payment of 3% of twelve months of rent (paid immediately)

Use the ARGUS method for handling months of vacancy and any related calculation

1. For the entire year of 2023 determine (show work!)
   1. What is the annual rent that is collected?
   2. What are annual expenses?

2. For the entire year of 2024 determine (show work!)
   1. What is the vacancy allowance?
   2. What is potential rent?

3. For the entire year of 2024 determine (show work!)
   1. What is expected TI?
   2. What are expected Leasing Commissions? As computed by ARGUS, what are utilities expenses (in total) for the entire year of 2024? Show work!