Question
Use the information provided below to estimate the market value of the office building that has been described using the discounted cash flow approach to
Use the information provided below to estimate the market value of the office building that has been described using the discounted cash flow approach to income valuation. Assume that you will sell the office building at the end of the 5th year ofownership.
Type of Property: Office Building
Leasable Space: 50,000 square feet
Average Rent: $25 per square foot per year
Expected Rent Growth: 2.5% per year
Vacancy and Collection Losses: 15% of potential gross income
Other Income: $1.50 per square foot per year
Expected Growth in Other Income: 3% per year
Operating Expenses: 45% of effective gross income
Capital Expenditures: 5% of effective gross income
Going-In Cap Rate: 7%
Going-Out Cap Rate: 7.125%
Selling Expenses: 7.5% of future selling price
Discount Rate: 8%
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