Question
You are considering purchasing a small mixed-use building. As part of your analysis, you want to project the NOI for next year (20X1). The seller
You are considering purchasing a small mixed-use building. As part of your analysis, you want to project the NOI for next year (20X1). The seller provides you with the following rent roll and information.
| Unit 1 | Unit 2 | Unit 3 |
Unit type | Office | Office | Retail |
Lease-end date | Dec. 31 20X9 | Dec.31 20X8 | June 30 20X6 |
Lease Type | Gross | Double net | Triple net |
Square feet | 16,000 | 8,000 | 8,000 |
Rent per square foot | 12 | 10 | 8 |
Percentage rent factor |
|
| 5% |
Breakpoint |
|
| 250,000 |
The common areas are 2,000 square feet
The anticipated sales for the tenant in Unit 3 are $300,000 for 20X1.
No vacancy and credit losses are expected over the foreseeable future.
The owner has allowed a local company to put up a sign on the side of the building for $2,000 per year.
The owner provides you with an income statement showing the following expenses for last year (20X0). Maintenance expenses are expected to increase by $3,000 starting in 20X1. All other expenses are not expected to change.
- Property taxes $70,000
- Income taxes $ 6,000
- Property insurance $ 3,000
- Snow removal $ 2,000
- Maintenance $ 8,000
- Management and Other $12,000
- Mortgage interest $90,000
- Depreciation $65,000
a) Calculate the projected NOI for next year (20X1).
b) Using the 20X1 projected NOI as an estimate for the stabilized NOI and a cap rate of 8%, what is the value of the building?
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