Property Description - 1. Size - 3 stories, 38,000 square feet (first and second floors are 18,900 square feet each, built over a parking structure which comprises the ground floor). The first floor is almost entirely for parking with two small lobbies off two street entrances. 2. Usage - the building is used entirely as office space (2nd and 3rd floors) and parking area (street level). 3. Tenants - the building has one tenant on the 2nd floor (ABC Company) and another tenant on the 3rd floor (Acme Company). Both tenants occupy the building pursuant to leases of different lengths and rent structures. 4. Vacancy - Suite 225 on the 2nd floor is vacant - 1,700 sf-market rent is $2.00/sf full service gross. SEE ASSUMPTIONS ABOUT WHAT HAPPENS WITH THIS VACANCY. 5. Income ABC Company - Suite 200 i. Lease term - 1/1/20 - 12/31/25 ii. Premises 17,400 rentable square feet on the 2nd floor (suite 200) prorata share is 45.79%. iii. Base rent - $2.00/sf per month full service gross with 2020 base year. Rent increases 2% per year each year on January 1st iv. Additional Rent - Starting in January of 2021, tenant pays its pro-rata share of the increase in operating expenses over the base year (2020). Base year (2020) expenses for the building - see below. a. b. Acme Company-Suite 300 i. Lease term - 6/1/15 - 8/31/20 ii. Premises 18,900 rentable square feet on the 1st floor (suite 100) prorata share is 49.74%. iii. Base rent - $1.80/sf per month full service gross with 2015 base year. Base Rent is flat for the term. iv. Additional Rent - Tenant is paying their prorata share of increases in operating expenses over the base year (2015) which equates to $.50/sf/month. V. Renewal - see Assumptions below. 6. Vacant Space - Suite 225 i. Suite 225 (1,700 sf) is currently vacant. The leasing agent thinks that the space will lease for $2.00/sf/month full service gross and projects that the space will be leased and will generate base rent payments as of 1/1/21. This tenant negotiated a concession: No CAM, tax or insurance (additional rent) will be due from the new tenant for the first 2 years of the lease. NOTE: DO NOT USE A VACANCY/CREDIT LOSS PERCENTAGE IN YOUR INCOME PROJECTION PROJECT VACANT SPACE USING THE ABOVE PARAMETERS. 7. Other Income - Additional Rent i. Only one tenant, Acme Company, is paying Additional Rent in the form of CAM, tax, insurance and utility reimbursements (see above). ii. ABC Company's lease started 1/1/20 so they are not paying any Additional Rent yet. But they will start paying estimates toward their share of these costs (on a prorata basis) starting 1/1/2021. 2020 and 2021 Operating expenses are expected to be what is shown below. 8. Other Income - Parking Revenue i. The ground level parking lot is for tenants and visitors. The tenant monthly parkers are expected to generate $10,000.00/mo. in revenue total for 2020 and 2021. ii. The visitor parking revenue is expected to be an additional $5,000.00/mo. for 2020 and 2021. iii. The parking lot maintenance costs are included in the operating expenses (see below). iv. The parking revenue will remain the same regardless of occupancy as the garage is full and cannot accommodate any more parkers. a. 9. Operating Expenses The actual 2020 operating expenses are expected to be as follows (all per year): 1. Property Taxes - $142,500.00 2. Utilities - $76,000.00 3. Insurance - $19,000.00 4. Maintenance - $100,000.00 5. Other Oper. Expenses - $42,500.00 (includes parking lot exp.) b. 2021 operating expenses are projected as follows (all per year): 1. Property Taxes - $145,350.00 2. Utilities - $83,600.00 3. Insurance - $19,000.00 4. Maintenance - $105,000.00 5. Other Oper. Expenses - $44,625.00 (includes parking lot exp.) 10. Other Salient Facts: i. Market Cap Rate - The following recent market comparable sales will provide the market cap rate for the subject: 1. 123 Main Street-sold 6 mos. ago for $10,000.000.00. It's projected Net Operating Income was $750,000.00 2. 1001 First Street - sold one year ago for $5,000,000.00. It's projected Net Operating Income was $400,000.00 3. These comparable sales are considered equally weighted for purposes of deriving the market cap rate. Objective - Determine the indicated market value of this building utilizing the Income Approach to Value as of the date of valuation - 12/31/20. a. Income Statement showing Net Operating Income in correct form b. Correctly apply the market cap rate from comparable sales to arrive at your resultant opinion of indicated market value via the Income Approach. Assumptions: 1. Vacant space - suite 225 for this case study, you must project rent for this space at $2.00/square foot, with a full service lease starting 1/1/21. The information in the case says to assume no additional rent from this space for your projections, just base rent. 2. Vacancy and Collection Losses - you do not need to use a vacancy or collection loss for this case study as I have given you the actual vacancy and you can assume no collection losses. 3. Renewal - You can assume that the expiring tenant, Acme, will renew at $2.00/sf full service gross effective on 1/1/21. Since Acme will be renewing, you can also assume that they will get a new base year and will not pay any additional rent after renewal. 4. Parking Revenue - You can assume that the parking revenue will remain constant for both years regardless of the vacant space being leased. 5. Operating Expenses - For calculation of the additional rental income, assume that the projected operating expenses for 2021 will be based on the respective tenant's pro-rata share of the 2021 operating expenses. Property Description - 1. Size - 3 stories, 38,000 square feet (first and second floors are 18,900 square feet each, built over a parking structure which comprises the ground floor). The first floor is almost entirely for parking with two small lobbies off two street entrances. 2. Usage - the building is used entirely as office space (2nd and 3rd floors) and parking area (street level). 3. Tenants - the building has one tenant on the 2nd floor (ABC Company) and another tenant on the 3rd floor (Acme Company). Both tenants occupy the building pursuant to leases of different lengths and rent structures. 4. Vacancy - Suite 225 on the 2nd floor is vacant - 1,700 sf-market rent is $2.00/sf full service gross. SEE ASSUMPTIONS ABOUT WHAT HAPPENS WITH THIS VACANCY. 5. Income ABC Company - Suite 200 i. Lease term - 1/1/20 - 12/31/25 ii. Premises 17,400 rentable square feet on the 2nd floor (suite 200) prorata share is 45.79%. iii. Base rent - $2.00/sf per month full service gross with 2020 base year. Rent increases 2% per year each year on January 1st iv. Additional Rent - Starting in January of 2021, tenant pays its pro-rata share of the increase in operating expenses over the base year (2020). Base year (2020) expenses for the building - see below. a. b. Acme Company-Suite 300 i. Lease term - 6/1/15 - 8/31/20 ii. Premises 18,900 rentable square feet on the 1st floor (suite 100) prorata share is 49.74%. iii. Base rent - $1.80/sf per month full service gross with 2015 base year. Base Rent is flat for the term. iv. Additional Rent - Tenant is paying their prorata share of increases in operating expenses over the base year (2015) which equates to $.50/sf/month. V. Renewal - see Assumptions below. 6. Vacant Space - Suite 225 i. Suite 225 (1,700 sf) is currently vacant. The leasing agent thinks that the space will lease for $2.00/sf/month full service gross and projects that the space will be leased and will generate base rent payments as of 1/1/21. This tenant negotiated a concession: No CAM, tax or insurance (additional rent) will be due from the new tenant for the first 2 years of the lease. NOTE: DO NOT USE A VACANCY/CREDIT LOSS PERCENTAGE IN YOUR INCOME PROJECTION PROJECT VACANT SPACE USING THE ABOVE PARAMETERS. 7. Other Income - Additional Rent i. Only one tenant, Acme Company, is paying Additional Rent in the form of CAM, tax, insurance and utility reimbursements (see above). ii. ABC Company's lease started 1/1/20 so they are not paying any Additional Rent yet. But they will start paying estimates toward their share of these costs (on a prorata basis) starting 1/1/2021. 2020 and 2021 Operating expenses are expected to be what is shown below. 8. Other Income - Parking Revenue i. The ground level parking lot is for tenants and visitors. The tenant monthly parkers are expected to generate $10,000.00/mo. in revenue total for 2020 and 2021. ii. The visitor parking revenue is expected to be an additional $5,000.00/mo. for 2020 and 2021. iii. The parking lot maintenance costs are included in the operating expenses (see below). iv. The parking revenue will remain the same regardless of occupancy as the garage is full and cannot accommodate any more parkers. a. 9. Operating Expenses The actual 2020 operating expenses are expected to be as follows (all per year): 1. Property Taxes - $142,500.00 2. Utilities - $76,000.00 3. Insurance - $19,000.00 4. Maintenance - $100,000.00 5. Other Oper. Expenses - $42,500.00 (includes parking lot exp.) b. 2021 operating expenses are projected as follows (all per year): 1. Property Taxes - $145,350.00 2. Utilities - $83,600.00 3. Insurance - $19,000.00 4. Maintenance - $105,000.00 5. Other Oper. Expenses - $44,625.00 (includes parking lot exp.) 10. Other Salient Facts: i. Market Cap Rate - The following recent market comparable sales will provide the market cap rate for the subject: 1. 123 Main Street-sold 6 mos. ago for $10,000.000.00. It's projected Net Operating Income was $750,000.00 2. 1001 First Street - sold one year ago for $5,000,000.00. It's projected Net Operating Income was $400,000.00 3. These comparable sales are considered equally weighted for purposes of deriving the market cap rate. Objective - Determine the indicated market value of this building utilizing the Income Approach to Value as of the date of valuation - 12/31/20. a. Income Statement showing Net Operating Income in correct form b. Correctly apply the market cap rate from comparable sales to arrive at your resultant opinion of indicated market value via the Income Approach. Assumptions: 1. Vacant space - suite 225 for this case study, you must project rent for this space at $2.00/square foot, with a full service lease starting 1/1/21. The information in the case says to assume no additional rent from this space for your projections, just base rent. 2. Vacancy and Collection Losses - you do not need to use a vacancy or collection loss for this case study as I have given you the actual vacancy and you can assume no collection losses. 3. Renewal - You can assume that the expiring tenant, Acme, will renew at $2.00/sf full service gross effective on 1/1/21. Since Acme will be renewing, you can also assume that they will get a new base year and will not pay any additional rent after renewal. 4. Parking Revenue - You can assume that the parking revenue will remain constant for both years regardless of the vacant space being leased. 5. Operating Expenses - For calculation of the additional rental income, assume that the projected operating expenses for 2021 will be based on the respective tenant's pro-rata share of the 2021 operating expenses