Question
You are valuing a newly constructed office building in Chesterfield, Missouri. The building has a rentable area of 13,200 square feet and will be occupied
You are valuing a newly constructed office building in Chesterfield, Missouri. The building has a rentable area of 13,200 square feet and will be occupied by the two tenants listed below.
Tenant | Rentable Area (Square Feet) | Annual Rent per Square Foot |
Bank of America | 6,000 | $30.00 |
KPMG | 7,200 | $25.00 |
Both tenants have signed 10-year leases. Assume that the rental rates will not change during the term of the leases.
Vacancy rate for similar properties in that market is 10%.
Operating expenses are estimated at 50% of the effective gross income.
The current (going-in) cap rate is 8%.
Going-out (terminal) cap rate is estimated at 9%.
The appropriate discount rate (required rate of return) for this investment is 10%.
The investment horizon will be 5 years.
Using the Discounted Cash Flow method, estimate the market value of the property (round to the nearest thousand).
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